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A CRITIQUE OF ECONOMICS 



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THE MACMILLAN COMPANY 

NEW YORK ■ BOSTON • CHICAGO ■ DALIAS 
ATLANTA • SAN FRANCISCO 

MACMILLAN & CO.. Limited 

LONDON • BOMBAY • CALCUTTA 
MELBOURNE 

THE MACMILLAN CO. OF CANADA. Ltd. 

TORONTO 



/ 

A CRITIQUE OF ECONOMICS 

DOCTRINAL AND METHODOLOGICAL 



BY 
O. FRED BOUCKE ' 

Professor of Economics at Pennsylvania State College 

AUTHOE OF "the LIMITS OF SOCIALISM" AND "tHE DEVELOPMENT OF 

ECONOMICS, 1750-1900" 



THE MACMILLAN COMPANY 
1922 

All Rights Reserved 



FEINTED IN THE UNITED STATES OF AMEKICA 






Copyright, 1922, 

By the macmillan company. V 



Set up and printed. Published October, 1922. 



Press of 

J. J. Little & Ives Company 

New York, U. S. A. 

OCT 25 72 ^ 



Inscribed 

TO 

The Memory of 

SIMON NELSON PATTEN 

Revered Teacher 

AND 

Friend 



PREFACE 

On account of recent developments in philosophy and 
science we are today again confronted with the important 
question as to whether economics is really a science or 
only a study of values akin to philosophy proper. If 
economics is a science comparable to physics or chemistry, 
for example, applications in both private and public 
life may be possible ; if not, the practical value of economic 
research must be slight, whatever our interest in it on 
other grounds. 

This book is an attempt mainly to show in what sense 
economics may be called a science, and what changes 
seem necessary to bring it into harmony with current 
facts and concepts in allied fields. The first part is en- 
tirely critical, following other writers who have broken 
with either Utilitarian (classical and neo-classical) or 
Marginal economics, or with both. It deals with the 
errors of the old psychology on which economic theorizing 
until recently was based, and supports the well-known 
contention that economic laws so far have been not so 
much laws as proofs derived from certain more or less 
arbitrary assumptions. To this extent then the first part 
goes over familiar ground and leads simply to a nega- 
tion. 

The second part, however, is meant to be more than a 
criticism. It seeks to make clear not only that new points 
in method must be stressed if old premises are abandoned. 



viii PREFACE 

but also that this question of method must be connected 
with current views in psychology, philosophy, logic, and 
ethics. That the rejection of eighteenth century sensa- 
tionalism would prove fatal to many economic "laws" 
might be taken for granted. That for the same reason 
however the relation of induction to deduction, of statics 
to dynamics, of statistics to induction, or of economics to 
ethics should also be restated is not self-evident. Yet 
this is the belief of the present writer, and hence his 
endeavor to sketch in outline a new methodology of 
economics. The second part of the book thus is construc- 
tive as well as destructive, and has a bearing on all social 
inquiries, not merely on economics. 

In saying this, however, the writer wishes to call at- 
tention to three points : 

In the first place the logic of the principal argument in 
this book will be broken if its several chapters are not 
read in the exact order here given. Any departure may 
lead to misunderstandings with regard to a particular 
problem. 

In the second place the approach here made is tentative, 
and not by any means categorical, in spite of a rather 
positive tone here or there. It is virtually impossible 
to preserve at all times the interrogatory form, however 
great our desire to admit the subjective nature of all 
inquiry, and especially of a critique of economics passing 
through a transition stage. 

In the third place, the writer of these lines is keenly 
aware of his obligations to other writers, living and no 
longer alive. A bibliography has been appended in order 
to indicate partly the scope of this indebtedness. But it 



PREFACE ix 

will necessarily be very fragmentary. For the rest, there- 
fore, the acknowledgment must be implied rather than ex- 
pressed. It is the text which shows what is borrowed and 
what is new, and to this the expert will turn in making 
his appraisal. 



CONTENTS 

CHAPTER PAQBB 

1. The Problem • 1—39 



PART I. A CRITIQUE OF ECONOMIC 
PRINCIPLES 

2. Valuation 43- 76 

3. Price 77-100 

4. Distribution 101—128 

5. Production . 129-140 

PART II. A CRITIQUE OF ECONOMIC 
METHODOLOGY 

A Restatement of the Problem .... 143-146 

6. Inference 147-163 

7. Law and Causation 164—197 

8. The Methods of Science ...... 198-235 

9. The Methodology of Economics . • . . 236-278 
10. Lines of Reconstruction 279-288 

Bibliography 289-301 

Index •; • :.i :.< • • S03-305 



TABLES 

PAGB 

One: Classification of Margins Used in Marginal Eco- 
nomics . 124 

Two: Important Margins for the Distributive Theory 

of Marginal Economics 125 

Three: Logical Order for the Basic Concepts of Eco- 
nomics as a Science 137 



A CRITIQUE 
OF ECONOMICS 

CHAPTER ONE 
THE PROBLEM 

How Economics Became an Exact Science. — The 
founders of economics as a science had very definite 
hopes regarding it.-^ They wished to show that laws 
prevailed in the realm of psychics no less than in that 
of physics. They differed from the Kameralists and Mer- 
cantilists in that they cared little about mere descrip- 
tion of individual events or institutions, and much about 
the discovery of principles which should make applica- 
tions in government reliable and fruitful. It was held 
by the Physiocrats and by Adam Smith that the New- 
tonian system could not stand alone in the cosmos, that 
mind and human actions in general must surely have 
their laws too, and that a continuity from molecule to 
man was part of the plan of the Creator. 

The eighteenth century carried on the work of the, pre- 
ceding one of course, and there was a great variety of 
beliefs on things philosophical. Most of the viewpoints 
in metaphysics and epistemology, which have since then 

^Discussed in the writer's "Development of Economics," of which 
the present book is, in a sense, a continuation. 

1 



2 A CRITIQUE OF ECONOMICS 

come to definite expression, found currency in one form 
or another even at that time. It would be wrong to say 
that the age of Voltaire was preeminently materialistic, 
or phenomenalistic, or empirical or rationalistic, and so 
on. We cannot identify so broad a stretch of time, at 
ticular system of speculation. But there is no doubt 
so late a date in the history of mankind, with one par- 
that the men who made out of Kameralism a science, or 
essayed to do so, leaned strongly toward a monism that 
coupled mind with matter, acknowledging but one Design 
in the workings of organic and inorganic existence, and 
believing implicitly in the possibility of proving social 
events as regular, as truly subject to law and causation, 
as the substances, the forces, that had been studied so 
successfully by Galileo and his disciples. The fathers 
of economics, of political economy, were more interested 
in disclosing laws of feeling, valuation, and action than 
in devising ways and means for filling the public coffers. 
The needs of the state were not slighted. Nobody over- 
looked them, or thought them unsuitable for study by 
theorists. The eighteenth century was so filled with wars 
and striking changes in the economic environment that 
public revenue and expenditure was sure to form a 
fascinating topic. But on the other hand the scientific 
spirit, the aim at a formulation of laws which should 
show what governs the present and the future — this 
thought animated most of the men who lifted economics 
out of its obscurity, developing it into the first of modern 
social sciences. 

The Physiocrats were outspokenly materialistic and 
stressed the circulation of wealth as a counterpart to the 
circulation of blood in the human body, both correspond- 



THE PROBLEM 3 

ing, as it seemed, to the orbits of the planets in the 
cosmos. This naive, physical view of socio-economic hap- 
penings had its disadvantages, but it meant from the 
start a concern for the thing-aspects of wealth, for the 
physical volume of production, for progress measured by 
output and income in tangible items of consumption ; and 
this was a wholesome interest. To the Scotch philosopher 
who published his "Wealth of Nations" in 1776 the Physi- 
ocratic attitude was not altogether intelligible, or at any 
rate acceptable. He agreed with Quesnay on many 
points, but put the importance of labor far above that 
of the fertility of the soil, and furthermore took a psycho- 
logical view of the economic process that has dominated 
us ever since. It would not be worth while to rehearse 
the circumstances of the rise of the science of economics, 
except for this faith in laws, equal to those of the New- 
tonian, and for the firm belief of Naturalistic economists 
since Adam Smith, that human nature is the basis of such 
laws. The fact that the author of the "Wealth of Na- 
tions" had much earlier written a "Theory of the Moral 
Sentiments," while other British thinkers had turned out a 
long series of psychological studies both from a moral 
and a logical standpoint, this fact should never be for- 
gotten in our appraisal of economics to-day, especially 
when we contemplate its present perplexities. 

Smith first emphasized the balance of forces that a 
wise Providence displayed everywhere in the universe. He 
was profoundly impressed with a play of forces that 
meant peace and prosperity in the long run. He opposed 
sympathy and altruism to self-interest, and derived his 
cosmopolitanism and doctrine of Laissez Faire from this 
inherent goodness of human nature. Individualism meant 



4 A CRITIQUE OF ECONOMICS 

egotism, but also solidarity of aims. Human nature was 
the foundation of all wealth and its augmentation. What 
individuals thought and endeavored was the key to the 
principles manifested in price, income, and productivity. 
These fundamentals back of the pricing process took first 
place in the consideration of things human. The founders 
of economics insisted more upon the premises of their 
science than upon the principles of price or the circula- 
tion of wealth. 

Those who are customarily called the English classics, 
to wit Malthus, Ricardo, Mill (father and son) and 
Senior, were just as objective in their analysis as the 
Naturalists, i.e.. Physiocrats and Smith. The facts of 
economics were still things as much as values, and the 
non-pecuniary standard was conspicuous in the writings 
of the time. Physical productivity and costs as ex- 
penditure of time or of tangible goods were real to these 
Utilitarians — if we may call them so because of their 
hedonistic psychology and ethics. 

But they differed from the Naturalists in substituting 
price and factorial shares for production and exchange. 
They gave a preeminence to the problem of price and 
distribution that has marked economics up to our own 
day. They brought in such concepts as labor-pain, talked 
of abstinence as an clement in rates of interest, and gave 
to utility a higher rating as a determiner of price than 
their predecessors could have allowed. And above all, 
they admitted frankly their hedonistic outlook. What 
Bentham and others before him had said in explanation 
of our moral codes and of our conduct in private and 
public, the economic Utilitarians took up as an arcanum, 
a precious stone of wisdom, that might explain the opera- 



THE PROBLEM 5 

tions of the economic system. Sensationalistic psy- 
chology colored economics from the turn of the century 
on, and has done so up to the present moment. 

It was due to one man chiefly that this advance of 
economics as an "exact science" was so steady and rapid, 
and this man was John Stuart Mill. While others had 
made clear the bearing of legal premises upon the analysis 
of price and income, while much pains had been taken to 
show the laws of nature manifesting themselves in a 
"normaP* price, or in the growth of the national income, 
it was left to the younger Mill to point out why and how 
economics could be a science comparable with physics. 
Precisely as Comte had proceeded to found a "social 
physics," calling it sociology, so J. S. Mill went ahead 
finding for economics a methodology. Economics has 
never had a more ardent, a more capable, a more illumi- 
nating exponent of the philosophical prerequisites of 
economics than this writer of the inductive "Logic" ajid of 
the "Principles of Political Economy." 

The questions of the scope and method of social sci- 
ence, and of economics in particular, were settled by Mill 
who was reared in the atmosphere of Utilitarianism. In 
essentials he remained true to sensationalism, even 
though he disavowed Benthamism, and borrowed from 
Comte In rounding out his logical survey. 

Through Mill's Logic the researches of the Naturalists 
were turned into a science of catallactlcs. Exactness 
counted more than comprehensiveness. The aim was to 
delimit economic investigations and to demonstrate be- 
yond a doubt that social laws were as genuine as those of 
physics or chemistry. The argument which J. S. Mill 
used for expounding his theory of deductive economics 



6 A CRITIQUE OF ECONOMICS 

cannot here be stated, nor would it be in place. But we 
may bear in mind that catallactics rested on the su- 
premacy of pain-pleasure sensations and memories and 
desires over all other psychic states ; that wealth was iden- 
tified with pleasure, and that the hedonistic theory of 
valuation was as much a part of Mill's logic as of later 
economic doctrines of price and income. The statical 
viewpoint likewise presupposed the existence of psychic 
forces definite and interacting like the physical, so that 
an equilibrium for economists had to mean a status quo, 
as well as an average result. And again: If J. S. Mill 
defended deduction as the economic method his chief rea- 
son was the circumstance, as he believed, that psychologi- 
cal and social happenings obeyed the principle of a Com- 
position of Causes, not of chemical causation. A distinc- 
tion was made "between the case in which the joint effect 
of causes is the sum of their separate effects, and the case 
in which it is heterogeneous to them ; between laws which 
work together without alteration, and laws which, when 
called upon to work together, cease and give place to 
others." ^ The processes of consciousness and of society 
represented a mechanical rather than a chemical blending 
of elements, and therefore economists were not only per- 
mitted, but really compelled, to reason deductively, to 
consult the basic traits of man for their understanding of 
the relevant data, and to seek a simplicity of treatment 
by abstracting dominant motives from the whole of human 
nature, in short by following the suggestions of Hartley 
and James Mill who compounded percepts and feelings in 
a quite arithmetical style out of the primary sensations. 

•Mill's "Logic," Book III, ch. 6, § 2. The argument is contained 
in Book III, chs. 6, 10, 11, and Book VI, chs. 4, 7, and 9. 



THE PROBLEM 7 

John Stuart Mill, to be sure, was not oblivious of the 
chemical aspects of physiology,^ but this he thought some- 
what apart from the main point. 

Now, though it is true that Historism departed radi- 
cally from all this kind of thinking on matters psychologi- 
cal and economic, and though it would be wrong to under- 
estimate the force of the Historical outlook as a protest 
against the individualistic, competitive economics of 
Smith and the Utilitarians after him, yet on two counts 
the Historical movement must be regarded as an interlude 
merely of a larger whole. For in the first place the 
friends of Historism were in quest of economic laws ex- 
actly like their opponents, albeit by a different route, 
and in the second place the vitality of Utilitarianism was 
so great that nothing up to the last few decades has seri- 
ously undermined it. Indeed, while the adherents of Mar- 
ginism have naturally magnified their original contribu- 
tions, in reality the gap between Mill or neo-classicism 
on the one hand, and Jevons or present-day Marginists 
on the other, is not unbridgeable. In fundamentals Mar- 
ginism resembles Utilitarianism, the chief differences be- 
ing the displacement in Marginism of objective terms by 
subjective ones, and the introduction of a differential, of 
a margin, whose services were expected to be unique. All 
that the Utilitarians stood for, to wit, the stress on legal 
premises of property, freedom of contract, freedom of 
vocation and residence, mobility of labor and capital in 
a legal or perhaps technical sense, this and the accept- 
ance of sensationalism as a theory of value and action, 
or as a basis for an economic methodology — all this the 
two groups of economists shared in common. The de- 
"See Book VI, ch. 4, §§ 2-3. 



8 A CRITIQUE OF ECONOMICS 

parture from Utilitarian norms was less resolute than 
imagined. The ties linking Mill and Menger were 
stronger than the differences of opinion which, to some 
extent, drove them apart. What characterized both was 
an insistence upon precise formulations of laws in Price 
and Distribution, a belief in regularities abstracted in 
such a manner from reality as to produce a science of 
catallactics, Mill being inconsistent in this demarcation, 
because a greater mind and a friend of Comte, while 
Menger and Marginists in general strove to avoid con- 
tradictions regardless of what became of the world of 
facts. 

Remnants of the objective view still exist in definitions 
and treatments of expenses, of physical supply, and of 
productivity, but on the whole Marginism was subjective. 
Psychology, that is, sensationalism and hedonism, proved 
the bedrock of Marginal reasoning. Man in the center 
of valuations, psychic states as causes, and last or least 
units as standards of measurement — such were the in- 
novations that followed upon Utilitarianism. For the 
rest, everything was as of old. On the continent a trans- 
cendental logic served as well as MilFs empirical logic, 
since both stressed deduction of the formal sort. But 
otherwise sensationalism formed tacitly or expressedly 
the substratum of the economic edifice. 

Present Critical Attitude. — Nor was any widespread 
discontent with this state of affairs noticeable before the 
dawn of the twentieth century. Whatever protests were 
raised against this or that feature of the orthodox 
methodology or statement of principles was sporadic. 
Only as certain changes occurred in the environment and 
in other fields of scientific inquiry did economists 



THE PROBLEM 9 

scrutinize their teachings from another angle, thus 
arriving by degrees at opinions which now have brought 
a crisis in economics. We live in a period of transition 
whose final outcome none can predict. 

These changes have been forced upon us largely 
of course by the abandonment of sensationalistic psy- 
chology ^ — of which more in awhile — but the modifica- 
tions of principles in price, production, and distribution 
are themselves noteworthy and in part due entirely to a 
searching of heart among economists as such. Economic 
literature during the last two decades has excelled in 
critical revisions and in controversial tone, the Euro- 
peans leading in questions of methodology. But the Amer- 

* For literature in criticism and rejection of the hedonistic psy- 
chology see as follows: Before 1900: Bonar, J,, in Quarterly J. of 
Ec, October, 1888; Patten, S. N., in ^. ^. ^. 0/ Pol. ^ Soc. Sc, 
1892, pp. 28-29 by way of stressing a complementary-utility law; 
Stuart, H. W., in /, of Pol. Econ., December, 1895; Powers, H. H., 
in ^. ^. ^. 0/ Pol. ^ Soc. Sc, vols. 12-13; Veblen, Th., in /. of Pol. 
Ec, 1898, pp. 73-97. Since 1900: Pigou, A. C, Econ. J., March, 
1903; Davenport, H. J., "Value and Distribution," 1904, ch, 17; 
Veblen, Th., in Quart. J. of Econ. 1908, J. of Pol. Econ., November, 
1909; Wicksteed, Ph. H., "Common Sense of Political Economy," 
1910; Parker C, in P. ^ P. of Am. Ec. Assoc, March, 1918, in his 
"Motives in Economic Life"; Mitchell, W. C, in Quarterly J. of Ec, 
vol. 29, pp. 1-47, where recent literature on human nature is re- 
viewed; Clark, J. M., in /. of Pol. Ec, 1918, pp. 1-30, and 136-66, a 
historical resume; Fisher, I., in his Presidential address before 
American Association for Labor Legislation, 1918; Hamilton, W. H., 
in Am. Ec Review, March, 1919, pp. 316-17; Parry, C. E., in P. <| P. 
of Amer. Econ. Assoc, March, 1921, pp. 128-29. For a defense of 
hedonism see, e.g., Whitaker, A. C, in Pol. Sc Quarterly, 1916, pp. 
433-44. 

For German literature against hedonistic theory of valuations 
see: Schmoller, G., in his Jahrb., 1883, pp. 975-94; Simmel, G., "Ein- 
leitung in die Moralwissenschaft," 1892-3, vol. I, ch. 2; Boehm-Ba- 
werk, E., "Positive Theorie des Kapitals," edit, of 1909, vol. I, pp. 
311-29; Schumpeter, J., "Wesen und Hauptinhalt der Theoretischen 
Sozialoekonomie," 1908, passim,; Weber, M., in Archiv. f. Sozialw. 
und Pol., 1908, pp. 548-54; Cassel, G., "Theoretische Sozialoekonomik," 
edit, of 1921. For a statement on logical place of psychological 
premises in economics see, e.g., Wieser, F., in SchmoUer's Jahrb., 
1911, p. 924, dissenting from Schumpeter. 



10 A CRITIQUE OF ECONOMICS 

ican output was but little delayed, and not a whit less 
pronounced in candor of treatment. 

Hardly a tenet of economics, but it has been restated 
or impugned as to its correctness 1 ^ Not a crucial point 
in the arguments on price,^ production, and distribution,^ 
but reservations in accepting it have been offered, often 
with much feeling or aplomb, as if with a premonition of 
logical implications. Whether price® (and factorial 
shares) are the central problem of economics, whether 
competition ^ is really the milieu of price-fixing, whether 

*See for sweeping general criticism: Davenport, H. J., "Value and 
Distribution," p. ix; Hoxie, R. H., in /. of Pol. Ec, 1906, pp. 337- 
61; Young, A. A., in Qu. J. of Ec, 1911, p. 424; Haney, L. H., "His- 
tory of Economic Thought," edit, of 1920, pp. 557, 566; Anderson, 

B. M., "Value of Money," p. 83; Clark, J. M., in P. ^ P. of Am. 
Econ. Assoc, March, 1921, pp. 132-43, article on "Soundings of Non- 
Euclidian Economics." For noteworthy article on "Extension of 
Value Theory," see Friday, D., in Qu. J. of Ec, February, 1922. 

•Fetter, F. A., in Am. Econ. Rev., December, 1920, and Hamilton, 
W. H., in /. of Pol. Ec, 1918. On refutation of doctrine of a single 
price see: Watkins, G. P., in Qu. J. of Ec, 1915-16, p. 684; Hoxie, 
R. H., in /. of Pol. Ec, 1906, p. 425. For a much earlier statement 
by a French sociologist see Tarde, G., "La Logique Sociale," 1896, 
p. 365. 

' Hobson, J. A., "Economics of Distribution," 1900, pp. 16-22, and 
the same author's "Industrial System," 1910, p. 136. 

»Padan, R. S., in J. of Pol. Ec, 1904-05, p. 392; Anderson, B. M., 
"The Value of Money," p. 49; Persons, C. E., in Qu. J. of Ec, 1912- 
13, p. 547; also: Davenport, in Am. Ec. Rev., 1911, p. 750; Perry, 

C. E., in P. and P. of Am. Ec Assoc, March, 1921, p. 124; Stolz- 
man, R., "Grundzuege einer Philosophic der Volkswirtschaft," 1920. 
Liefmann, R., in Archiv. f. Sozialw. und Pol., 1912, pp. 1-54, and 
406-69. On functional correlation of prices see Schumpeter, J., 
"Theorie der Wirtschaftlichen Entwicklung," 1912, pp. 61 ff, and 
166-67. 

"Stolzman, R., in Conrad's Jahrb., 1918, pp. 303, 1-27, 145-66, 273- 
304; Anderson, "Value of Money," pp. 570, 559 (also same writer's 
"Social Value," 1911); Cooley, Ch. H., in Qu. J. of Ec, 1915-16, p. 
7; Perry, R. B., in Qu. J. of Ec, 1915-16, p. 464; Davenport, "Eco- 
nomics of Enterprise," pp. 92 et seq.; Diehl., K., in Conrad's Jahrb., 
vol. 51, 3d Ser., pp. 399-426; Zwiedineck, O., in Zeitschr. f. Oes. 
Staatsw., 1908, pp. 587-654, and for year 1909, pp. 78-128. On idea 
of an average social value and its rejection see Anderson, "Social 
Value," esp. chs. 7, 11, 17; Davenport, in /. of Ec, 1906, pp. 143-69; 



THE PROBLEM 11 

conventional price-analysis ^° can avoid making a vicious 
circle because of, or irrespective of, a statiis quo in dis- 
tribution, whether value is individual or social,^ whether 
scarcity ^" rather than utility is determinative of price, 
what purchasing-power ^^ signifies as compared with per- 
sonal preferences, how expenses ^^ figure in price or com- 
pare with non-pecuniary costs, what a "factor" ^^ in 
production should signify, how capital ^* is formed and 
to be used in its several meanings as loan-fund or pro- 
duction-goods or as sheer right to income, whether ^® 
margins of utility apply to all goods or not, and what 

Wieser, F., "Natural Value" (transl. by Malloch, 1893), Bk. II, ch, 
3; and Simmel, G., "Die Philosophic des Geldes," edit, of 1907, pp. 
476-77, where a Marxian viewpoint is taken. 

"See Liefmann, R., "Grundsaetze der Volkswirtschaft," 1917, 
vol. I. 

« Wright, Ph. G., in Qu. J. of Ec, 1912-13, p. 307. 

"Simpson, K., in Qu. J. of Ec, 1921, p. 287: "Price approximates 
buik-line or marginal cost under normal conditions of competition," 
gross profits of all producers in a given industry being about 10 per 
cent of the invested capital. See also Stolzman, in Conrad's Jahrb., 
1919, p. 340; Esslen, J. B., in SchmoUer's Jahrb., 1918, pp. 1075-1123. 
On subjective view of cost as economic motive see Liefmann, R., in 
Conrad's Jahrb., 1913, pp. 603-51 where Nutzen minus Kosten gives 
Rein^ertrag ; Kraus, O., in Jahrb. der Philosophie, 1914, p. 45. For 
a rejection of individualistic cost concept see Haney, L. H., in Am. 
Ec. Rev., 1912, pp. 590-600. For other discussions of the same topic 
see Cassel, G., in Zeitschr. f. Ges. Stattsw., 1901, pp. 68-100; Clark, 
J. M., in Qu. J. of Ec, 1913-14, p. 770; Bell, Sp., ibidem, for year 
1918, p. 523; Knight, F. H., in /. of Pol. Ec, 1921, p. 317. 

** Cassel, G., "Nature and Necessity of Interest," 1903, pp. 74 and 
85. See also Davenport, "Economics of Enterprise," ch. 22. 

"Tuttle, Ch. A., in Qu. J. of Ec, 1904, pp. 54-96; Borght, R. v. d., 
in Conrad's Jahrb., 1903, pp. 596-607, on capital as a loan-fund. See 
also Veblen, Th., in his "Theory of Business Enterprise," 1904, chs. 
5-6; Davenport, "Economics of Enterprise," ch. 18; King, W. I., in 
Am. Ec Rev., December, 1920, p. 754; Friday, D., in P. and P. of 
Am. Econ. Assoc, March, 1919; Moulton, H. G., in J. of Pol. Ec, 
1918, pp. 484-508, 638-63, 705-31, 849-81, and the same writer's 
"Financial Organization of Society," 1921, ch. 10. 

"Wieser, F., "Ursprung und Hauptgesetze des Wirtschaftlichen 
Wertes," 1884, pp. 198-200; Flux, A. W., "Economic Principles," 
1905, p. 23; Watkins, G. P., "Welfare as an Economic Quantity," ch. 
9; Haney, "History of Economic Thought," 1920, p. 568. 



12 A CRITIQUE OF ECONOMICS 

their role as price-determinants, whether incomes ^* are 
prices or not, whether one law ^"^ governs all prices of 
goods and services, what the number of sharers in the 
distributive process, ^^ how productivity ^^ as against 
valuations or impatience fixes certain shares — such and 
other questions were raised anew of recent years, the 
answers varying so greatly that it would be the height 
of complacence, of lazy indifference, to present economic 
science as having attained a secure foundation. 

The wave of criticism has swept the whole western 
world, not merely one country or one school of econom- 
ists. The crest of the wave may have passed, in the eyes 

^' Hobson, "Economics of Distribution," 1900, p. 76, and the same 
writer's "Industrial System," 1910, p. ix and 274. See also Daven- 
port, "Value and Distribution," p. 274; Anderson, "Value of Money," 
pp. 83, 112, 119; Veblen, Th., in /. of Pol. Ec, 1909, pp. 620-36, and 
for 1908, pp. 147-95; Carlile, W. W., "Monetary Economics," 1912, 
chs. 5-6; Englaender, O., in Schmoller's Jahrb., 1920, pp. 399-450, 
709-39; Stolzmann, R., in Conrad's Jahrb., 1918, pp. 1-27, 273-303. 

" See Simiand, F., "La Methode Positive en Science Economique," 
1912; Tugan-Baranowsky, "Soziale Theorie der Verteilung," 1913; 
Hobson, "Economics of Distribution," 1900, ch. 10; Davenport, 
"Economics of Enterprise," in discussing shares versus costs of pro- 
duction; Cannan, E., in Qu. J. of Ec, May, 1905. For a general 
disavowal of distributive analysis up to date see Fisher, I., in 
P. and P. of Am. Ec. Assoc, March, 1919, p. 11. For a defense of 
classicism in this matter see Kleene, G. A., "Profit and Wages," 
1916, ch. 9. 

"Clark, J. B., "Distribution of Wealth," 1899; Hollander, J. H., 
in Qu. J. of Ec, 1903, pp. 261-79; Schumpeter, J., "Wesen und 
Hauptinhalt," p. 390; Kellenberger, in Zeitschr. f. die Oes. Staatsw., 
1912, pp. 658-70. 

^ Davenport, "Value and Distribution," p. 471 ; Adriance, W. M., 
in Qu. J. of Ec, 1914-15, pp. 149-76; Hobson, in /. of Pol. Ec, 
1903-04, pp. 449-72; Aftalion, A., in Revue d'Economie Politique, 
1911, pp. 145-84, 345-69. See also Parker, U. S., in J. of Pol. Ec, 
1907, pp. 231-37; Davenport, "Value and Distribution," p. 364; Kel- 
lenberger, E., in Zeitschr. f. Oes. Staatsw., 1912, pp. 658-70. For 
controversy on determinants of interest-rates see, among others, 
Davenport, "Economics of Enterprise," p. 380; Knight, F. H., in 
Qu. J. of Ec, 1915-16, pp. 298, 310; Brown, H. G., in Qu. J. of Ec, 
1912-13, p. 650; Veblen, "Instinct of Workmanship," 1914, p. 47, note. 
See also McGoun, A. F., in Qu. J. of Ec, 1917, pp. 547-70. 



THE PROBLEM 13 

of some, but indications are not altogether to that effect. 
What is more, there are outward signs of revolt, of dissen- 
sion or despair that must attract all those engrossed in 
economic speculation. For one thing recent literature 
everywhere, though voluminous and suggestive in par- 
ticulars, has carried on no consistent development of the 
main body of doctrines. For another thing, the study of 
business life, of cycles ^^ of production and profit, has 
gained greatly at the expense of erstwhile static surveys, 
a tendency that may be welcomed, no doubt, but none the 
less provides food for thought if one is familiar with past 
preachings and the possibilities of the future. In the 
third place, colleges in America have of late favored an 
emphasis on description rather than on a teaching of 
laws, so much so in places, that one wonders whether the 
science of economics is held worthy of serious cultivation 
or not. The demands of business have crowded out of 
the class-room the urge of a quiet, contemplative, non- 
utilitarian diagnosis of events, and what is widely pre- 
ferred is a near-by, practical acquaintance with the com- 
petitive norms ruling our producers. And, finally, there 
is reappearing among us a political economy whose pri- 



"The literature on business cycles, especially from a statistical 
standpoint, has grown greatly in the United States, as elsewhere. 
Among American books on the subject may be mentioned these: 
Jones, E. D., "Economic Crises," 1900; Burton, Th. E., "Crises and 
Depressions," 1902; Hull, G. H., "Industrial Depressions," 1911; 
Moore, H. L., "Economic Cycles, Their Law and Causes," 1914; 
Mitchell, W. C, "Business Cycles," 1913; Bilgram, H., and Levy, 
L. E., "The Cause of Business Depressions," 1914. Noteworthy are 
also the investigations of special committees maintained by large 
industrial plants and banks for purposes of business forecasts and 
such organized, strictly scientific, efforts as those of the Harvard 
University Committee on Economic Research in Cambridge, Mass., 
and of the National Bureau of Economic Research Incorporated in 
New York City. 



14. A CRITIQUE OF ECONOMICS 

mary aim is national development on partly collectivistic 
lines, it being sometimes openly conceded that price and 
income laws are too hypothetical or unpractical or vague 
or variable to deserve attention as much as descriptive 
accounts and precepts for political application. 

Now, this world-wide ferment directed against orthodox 
economic principles is bound to engage our solicitude. 
One is prone to ask : What is wrong with traditional doc- 
trine regardless of its premises in psychology, logic, or 
environment? To what extent has the analysis of price 
and shares, which has so preoccupied us for nigh a hun- 
dred years, failed in accomplishing its declared purposes, 
in yielding the regularities or generalizations that are the 
boast of all science? What may be said about the psychic 
facts alleged to be back of pricing, no matter whether 
we cling to sensationalism or not? Are the terms de- 
mand and supply quite clear? Were they used so as 
to give us a self-consistent view of the pricing mechan- 
ism? How should our notion of a determining factor in 
a causal sense be shaped, and what do we mean by fixing 
or measuring prices? 

Or, again, suppose we start with the definitions of 
catallactic economics, how are they logically related, and 
what is involved in our coloring them individualistically 
or in terms of a pecuniary norm? What has the division 
of production to say about the line of approach suitable 
to distributive problems? Are incomes prices in all re- 
spects, and if so, what prompted economists to overlay 
their price analysis with considerations of other elements 
that consumption goods appeared to be free from? What 
are the laws of production, and how much have 
they told us? And as for the margins so conspicuously 



THE PROBLEM 15 

paraded by the latest subjectivistic group, what have 
they done for us that might make them an indispensable 
feature in economic theory? 

Of these and other questions the critic will be disposed 
to say something, even if he were absorbed simply in an 
estimate of the principles of economics in the narrower 
sense. But of course, his work will not end there; cer- 
tainly not nowadays where so many fundamental tenets 
have been assailed. The question in fact is : Why these 
changes of opinion? Whence the change in venue that 
is threatening not only the supremacy, but the very life, 
of Utilitarian and Marginal economics? 

General Grounds of Critical Attitude. — As a first 
guess, to be sure, one may point to the new world of 
actualities in which we live, and make it seem as though 
the changes wrought since Adam Smith or John Stuart 
Mill demand inexorably a readjustment of theory. It is 
true undoubtedly that these transformations have af- 
fected the views of the closet philosopher and of the pro- 
fessional economist, thus accounting for a fraction of 
his complaints or pleas of reform. The legal premises 
of three generations ago are not so completely realized 
to-day. Competition and freedom of contract have been 
put under restraint. There are powerful reasons why 
we should take the assumptions of the classicists with a 
grain of salt, even if mindful of the rough accuracy of 
the rules of procedure they laid down. Competition still 
obtains, but not as much among individuals as before. 
The fighting unit has been enlarged, so to say. We com- 
pete as groups rather than as single buyers or sellers, 
producers or consumers. Mobility of the technical sort 
has been circumscribed or even annulled by conditions 



16 A CRITIQUE OF ECONOMICS 

that our forefathers knew nothing of. Sentiment has in 
no small measure gone against an untrameled individ- 
ualism, and thinkers there are to-day more than ever who 
deplore it on the one hand, or pronounce it fictitious on 
the other. Thus economic principles have gradually 
undergone a censure akin to that brought to bear upon 
the practices of the egotistic entrepreneur. 

Yet, if we seek for the main key to the riddle that con- 
fronts us we must reach out farther and reckon with 
facts that are not altogether economic. We must re- 
member the changes in other spheres of inquiry, in psy- 
chology, biology, logic, and philosophy in general. We 
must prepare for a long journey of exploration in order 
to orient ourselves finally in our own precincts of Prin- 
ciples of Economics. Economics was first founded by 
men who were philosophers even more than economists, 
whose training fitted them peculiarly for giving social 
happenings a deep, perhaps even an occult, significance. 
Let us not forget that Smith and Quesnay and his ilk, 
Bentham and James and J. S. Mill, and Say and Sidg- 
wick and Jevons were minds of large caliber, thinkers 
whose greatest desire was a discovery of laws comparable 
to those of natural science, though socketed in certain 
presuppositions metaphysical. Philosophy is the mother 
of all sciences, and to this rule economics is no exception ! 

Put differently. Utilitarian and Marginal economics 
have their roots both in theories of human nature, and 
in theories of knowledge. If catallactics eventually sup- 
planted the theory of prosperity of the Naturalists the 
reason lies in a set of axioms and speculations that only 
during the last few decades have been, in large part, 
definitely repudiated. Statics and the "mathematical 



THE PROBLEM IT 

method," price-mechanism and laws of income, valuation 
and productivity — all of these hinge on ideas framed not 
by the economists primarily, but by outsiders, by abtruse 
thinkers in alien fields. If, then, changes occurred in 
these realms of thought, economists were likely to be 
touched by them sooner or later. The developments in 
psychology especially had echoes in economic literature. 
So it is fitting that we give them some consideration, 
even though they cannot solve our problem entirely. 
What is certain only is that psychology, which furnished 
all-important premises to economics, has made marked 
progress since the classics were penned, thus forcing 
eventually a new confession of faith from economists now 
living. 

In outline the progress of psychology was something 
like this. 

Developments in Psychology. — Broadly speaking mod- 
ern psychology was at the beginning a part of either the 
rationalistic or the empirical systems of philosophy. 
With Descartes Rationalism, not only as a theory of 
knowledge, but also as an inquiry into psychic processes 
in the narrower sense, became frankly dualistic, positing 
"faculties" and innate ideas as a key to the understand- 
ing of human nature. Reason was exalted and mind 
sharply set off against substance or extension. Men like 
Tetens and Wolff in the eighteenth century popularized 
the notion of distinct departments of consciousness, the 
former giving currency to the threefold division of psy- 
chology into Cognition, Affection, and Volition. 

The question whether causality obtained in the psychic 
realm was immediately raised, but never answered to the 
satisfaction of all. The Rationalists, and their descend- 



18 A CRITIQUE OF ECONOMICS 

ants in one respect or another, clung to the distinction 
between causal connection and a freedom of the will, 
modes of consciousness thus being expressedly or im- 
plicitly contrasted with physical facts. Personality was 
the active agent and ultimate reality. The mind was su- 
perior to the objects it recognized in the outside world. 
The metaphysical background of psychology, in other 
words, was never lost sight of, although for practical 
purposes it did not seem so important whether psycho- 
physical parallelism or interactionism served as a postu- 
late. This was one of the by-products of the Rational- 
istic viewpoint, which ever since has made enemies of two 
groups of investigators, viz., those who accepted causa- 
tion as universal, and those who preferred to leave a 
gap between psychics and mechanism. 

At the same time, however, that Greek speculations on 
soul and mind were continued by continental philosophers, 
British thinkers developed no less zealously the empirical 
standpoint ; and it was through the ascendancy of this 
latter that social science advanced rapidly even before 
the nineteenth century. 

Empirical psychology was at first sensationalistic. 
Sensations as basis of all consciousness and knowledge 
were expounded vigorously, from Thomas Hobbes on. 
Associations were used to explain thought, reasoning, and 
policies of the individual. The motives of all men had 
an intellectual origin due to the close dependence of ideas 
and memories upon feeling. In Germany a similar psy- 
chology was fostered by Herbart, somewhat in opposi- 
tion to the older faculty theories, although on the other 
hand it goes almost without saying that Herbart was 
not an out-and-out empiricist. He might speak of idea- 



THE PROBLEM 19 

forces and follow Bentham in balancing psychic states 
like physical forces, but none the less the Kantian influ- 
ence was noticeable. Apperception took the place of the 
simpler composition of ideas preached by Hartley, Hume, 
and J. Mill, while the transcendence of the soul, of a per- 
sonality safely protected from all irreverent pryings of 
the scientist, went as a matter of course. 

Not Herbart, but the experimental methods introduced 
by Weber, Fechner, Helmholtz, and their contemporaries 
elsewhere transformed speculation into a science. Physio- 
logical tests and the use of the microscope in studying 
organic matter helped to put psychology on a solid 
footing. Sensations were measured relative to in- 
creases of stimulus, and functions emphasized to the dis- 
regard of an old-time structural presentation of the 
mind. The ground was thus prepared for a broader, 
unified view of human nature which the evolutionary view 
of life forced irresistibly upon psychologists no less than 
upon biologists. Phylogeny displaced or complemented 
ontogeny. The truth that all things are relative and 
most things destined to render specific services took hold 
of investigators everywhere. The biological interpreta- 
tion indeed threatened to uproot completely the psycho- 
logical one. 

As a result of this change of venue reason was mini- 
mized and the irrational side of man magnified. Some 
turned to feelings and the emotions as the substratum of 
human action and thought. Others learned to recognize 
in the instincts an instrument for survival equal in power 
and significance to the faculty of reasoning, which here- 
tofore had attracted so much attention. That nerves 
formed an indispensable prerequisite to a learning proc- 



20 A CRITIQUE OF ECONOMICS 

ess was not denied, but that certain inborn conative dis- 
positions guided it seemed also clear. Whether instincts 
were the distinct, definable units, classifiable as easily as 
was once believed, is now a moot point. The trend of 
recent years has been toward a more reserved pronounce- 
ment on this vexing problem, especially since the physical 
basis of heredity and the principles dependent upon it 
have been more fully revealed. But nevertheless the func- 
tional, genetic view of psychological facts has gained 
rather than lost prestige. 

What is more, a number of psychologists have reso- 
lutely turned their back on the soul aspects of human 
nature, emphasizing instead of physiology the internally 
or externally manifest expressions of thought, feeling, 
and will. Thus Behaviorism virtually rejects con- 
sciousness, satisfying itself with physical facts and 
outward forms subject to observation and measurement. 
Closely related to these mechanistic Behaviorists are 
those who see in glands and their secretions (notably the 
ductless glands), in muscle, in blood pressure and the 
autonomic system, the key to man's conduct and moods. 
Neurology thus has forfeited its preeminence among 
psychological data, while in the numerous agents of 
metabolism human thought and action are held to become 
alone intelligible. One branch of contemporary psy- 
chology thus leans unmistakably toward a materialistic 
interpretation of life. 

Yet again psychology has likewise developed in an 
opposite direction, as the vogue of the Freudian phi- 
losophy proves most strikingly. Instead of self-con- 
sciousness and physiological causation these investigators 
concern themselves with the unconscious or, as regards a 



THE PROBLEM 21 

minor group, with the subconscious. Instead of chapters 
on will, memory, sensations, and concepts we find 
discourses on error, associations, wish, traumatic fixation, 
libido, and dual personality. Psychophysical parallel- 
ism is replaced by an interactionism that accords to 
psychics as genuine a causal bearing upon physical things 
as had always been assumed between physical things them- 
selves. Thus associationism has again assumed impor- 
tance. Thus dreams and wit and humor and a large 
variety of neural disturbances have arrested the atten- 
tion of specialists. And thus psychology is to-day 
studied from more standpoints than ever before, intro- 
spection holding its own in competition with experimenta- 
tion. On some fundamentals most psychologists are in 
agreement. But with regard to others dissension is wide- 
spread and ever ready for a hearing before an interested 
lay public. 

Meanwhile, however, the applications of psychology 
have not been wanting nor waiting. On all sides sugges- 
tions have been made and carried into fields quite dis- 
tinct from psychoanalysis in any sense. Thus for one 
thing research since the days of sensationalism has led 
to new theories of esthetics and ethics, or what some like 
to call ethics. It was natural that our ideas of the beau- 
tiful and of right and wrong should change with our 
understanding of pleasure or pleasantness, of will and 
motive, affection and emotions, instincts and attention. 
Logic also was deflected from its old path and widened 
so as to include phases of inference that formerly ap- 
peared negligible or nowise "logical." What knowledge 
is and to what extent we may possess it, this became a 
new query to be dealt with according to modern psycho- 



22 A CRITIQUE OF ECONOMICS 

logical values. Educators proposed to use the elements 
of memorizing, of interest, and of reasoning for aiding 
the youths of the country in our lower and higher insti- 
tutions of learning. Psychoanalysis accomplished much 
by ignoring parallelism and treating disease as a sequel 
to psychic disorders, to "lost" memories, or to inhibitions 
foisted upon mankind by a tyrannical social taboo. 

The social sciences, too, benefited by the march of 
psychological experts. Sociologists could not turn a 
deaf ear to them because they were concerned with the 
origins and the role of the mores, with a dialectic of cul- 
tural growth, with revolutions and with wars, with crime 
and vice, religion and race traits, and so on; economists, 
while not as versatile as their colleagues in sociology or 
history, nevertheless had reason to watch the turn of 
events, since their premises had always been psychologi- 
cal in large part, and because of their exposition of the 
problem of price and income, of consumption and pro- 
ductivity. 

Results of Breakdown of Sensationalism. — Thus, in 
fine, the increasing criticism leveled against economic 
principles since 1900 took much of its strength from the 
later contributions of psychologists. Since hedonistic 
associationism had broken down, economics abandoned a 
corresponding theory of valuation and motivation. The 
exact connection between traditional economic psychology 
and the Utilitarian (classical) or Marginal price-income 
theorems was never made clear. It remains to-day for 
the critic to show in detail why the value-analysis of 
economists is faulty, and how far we must swerve from 
beaten paths before attempting further progress. But 
it is well understood by many that the downfall of sensa- 



THE PROBLEM 23 

tionalism has somehow necessitated a turn-about in 
economic theory. Indeed, we may ask, is it possible 
that so basic a premise as the pain-pleasure calculus, as 
the intellectualistic view of the affections, can be aban- 
doned without its reacting disastrously upon other as- 
sumptions in economics? Is it not natural that catallac- 
tics and statics should suffer from this recantation of 
creeds? May we expect the monism of the Naturalists 
to hold sway hereafter, in spite of the newer psychology, 
in the face of all dualistic epistemologies promoted since 
Kant, and professed by men in one guise or another? Or 
to put a still diff'erent question : Should economists slough 
off their old beliefs without anxiety, either because con- 
temporary psychology will provide them with better data, 
or possibly because no psychology whatever is needed? 
Are no premises of any kind needed? Some will ask this. 
And we know of those who have answered in the negative 
because they wish economics to remain a science on its 
own merits. 

Such a simplification however may always be chal- 
lenged, since the data of economics are not verifiable 
exactly like those of physics or chemistry. There is a 
difference between social and natural sciences that we 
cannot afford to ignore. To appeal to facts is natural 
enough, but it will depend upon the kind of subject- 
matter dealt with whether the appeal can be followed 
up, or not. Economics for the most part has not been 
a factual science whose results could be tested with ease. 
The conclusions which our principles of economics em- 
brace have with rare exceptions not been of the kind that, 
for instance, chemists treat of. A difference exists be- 
tween those two classes of inquiry that gives sanction 



24. A CRITIQUE OF ECONOMICS 

to our driving the critique of present economic teachings 
back of legal or psychological postulates. 

Looked at from one point of view, of course, all his- 
tory is no more than a recurrent confession and abnega- 
tion of faiths. We note, in perusing the annals of human 
life, regularly ascending and descending curves of achieve- 
ment; epochs in which beliefs are formulated and zeal- 
ously defended as shining truths, and others in which the 
scoffers have the best of the situation, not so much be- 
cause they are superior judges or more effective promul- 
gators, but because in the light of new interests and 
environmental, physical or cultural, data they are able 
to make out a better case for both the familiar and the 
strange. We do not have to accept a particular variety 
of an economic interpretation of history in order to rec- 
ognize the intimate relation between conditions and creed, 
or between either and conduct. It is not to be doubted 
that views change, and that most of what does not appeal 
immediately to our senses has a variable content, a mean- 
ing differing with place, period, and people. There are 
long stretches of a development of ideas, and relatively 
shorter ones devoted to refuting what was developed. 
That which was self-evident at one time, becomes perhaps 
incredible the next time. What once elicited the praise 
of the most competent, is later stigmatized as fantastic 
or wholly misleading. Men for reasons not now of im- 
portance do love contradictions and contrasts, speak 
in hyperboles, and swing continually from one extreme 
to the other. Ardor now, and apathy soon afterwards ! 
One age building, while the next tears down with jubila- 
tion. Dogmatism followed by skepticism, and avowals 
eternally oscillating, as if stability were an impossibility ! 



THE PROBLEM 25 

An intellectual see-saw, as a great philosopher has taken 
pains to tell us ; a process of thesis, antithesis, and syn- 
thesis whose cycles and courses testify eloquently to the 
foibles and fatuous ambitions of mankind. 

All science, then, is relative and subject to periodic 
revampings. Yet, while this is true, it must be admitted 
that the natural sciences have been much more successful 
in establishing a lasting body of truths than philosophers 
or even social scientists. No matter what the modifica- 
tions of scientific creed, a residuum of indisputable facts 
has always remained to provide inspiration for further 
endeavors. For the most part the students of nature 
phenomena have been in the enviable position of being 
able to say to the doubter, to the enlightened public: If 
you believe not, find out for yourself. Here are data for 
you to work with; here are instruments for a testing; 
here are assured facts relative to which your subsequent 
generalizations must take shape. See what you can do 
with them, or prove by way of addition. 

Now, this challenge which most natural scientists may 
hurl at their skeptical opponents of honest intentions, 
and the grounds of which are themselves an explanation 
for the agreement usually characteristic of experimenters 
— certainly as regards fundamentals of fact, this sort 
of challenge is not popular among economists because the 
nature of their subject matter, of their methods, and of 
their generalizations forbids it, precludes it. Economics 
in particular has almost from the outset relied upon 
sheer assumptions, or worked with data whose service as 
assumptions in economics is now no longer cherished. 
Social sciences do not deal with visible, weighable, tan- 
gible facts. They cannot, generally speaking, take ref- 



26 A CRITIQUE OF ECONOMICS 

uge in experimentation when doubt arises. They must 
make their peace with what postulates are newly offered, 
or build on different lines if the foundations go to ruin. 
In short, the appeal to verifiable facts and to the 
adequacy of the deed of investigation lacks force because 
the facts themselves are at issue. 

Essentials of an Economic Methodology. — From time 
to time economists therefore, like other students of human 
events, have stated the logic of their science in a more or 
less gratifying manner. A few of these essays have suf- 
ficed for their age, but the most of what now ranks as 
economic methodology takes little account of recent prob- 
lems and requirements for growth in research. The prin- 
cipal writers on the subject have accepted formal logic 
for their view of deduction. They have opposed induc- 
tion uncompromisingly to deductive inquiry. Specific 
causation and the canons first announced by Mill in thor- 
oughgoing fashion have been given undue prominence, to 
say nothing of their abuse by some. An inter-group de- 
bate on Historical versus deductive methods has accen- 
tuated the shortcomings of each, but without hewing 
straight along the line sketched out by the logicians them- 
selves. We have heard of the contentions between the 
Historians and the classics in England, of the reason 
why a generalization from past occurrences must be 
tardy in coming, or be inconclusive. Definitions have 
been fully discussed and tabulated, and the premises 
stated on which a static economics rests. All this has 
been done more than once, and in addition we have the 
incomparable, the epoch-making, the never-to-be-over- 
rated work of J. S. Mill, in which for the first and only 
time the logic of catallactics was expounded at length. 



THE PROBLEM 27 

with all the cogency of reasoning and range of informa- 
tion that its author had at his command. But one may 
ask: Is it not reasonable to expect further counsel from 
logic since the publication of Mill's work in 1843? 
Should we be satisfied with comparing schools of eco- 
nomic theory, examining with lingering fondness their 
definitions and use of abstractions? Or may anything 
definite be said on the present question of what economics 
must be without sensationalism, without possibly any 
psychology, and what it may undertake to do now that 
our notions of causation, of laws of nature, of inference 
and of human nature in general have weaned us from the 
Enlightenment ? 

A logic of economics evidently must be much more 
methodology than economics. It is not the latter which 
gives exceptional content to the former, but the former 
which dictates to the economist. If certain things con- 
stitute logic or inference or scientific method or law or 
human knowledge, then for any one field like economics 
certain other truths follow. The basis of methodology 
may be several things, for we touch here upon last ques- 
tions not amenable to our five or ten senses ; but once 
we have stated its essentials the corollaries for some one 
field like economics will be evident enough. Whether the 
epistemologist takes counsel with psychologists, whether 
the logician learns much or little from the actual routine 
of natural sciences, this may be a moot point; but there 
can be no doubt that economics, especially because it has 
been so far a conceptual science dealing with abstracts 
and not with the events as they happen from a common 
sense viewpoint, had to acknowledge its obligations to 
philosophy. What its basic definitions should be, what 



28 A CRITIQUE OF ECONOMICS 

the nature of its methods and conclusions, or to what 
extent it might make sure of its metes and bounds, these 
questions were inevitably settled by, first the premises in 
psychology, and, secondly, the accepted views in logic 
and epistemology. 

Recent German Economics. — The close affiliation be- 
tween economics and a general methodology might, a 
propos of this topic, be well illustrated from what hap- 
pened in Germany, the home of Kant and a bulky litera- 
ture on all things theoretical. Not that other countries 
failed to take cognizance of this underlying problem. Not 
at all. For in Great Britain, France, and Italy much 
was written in late years on the philosophy of economics, 
preferably in the light of changes in psychology. 
Everywhere, the United States not excluded, a subjecti- 
vistic attitude gained the upperhand. The pragmatic, 
phenomenalistic tide that swept over Anglo-Saxon lands, 
was symptomatic of what a modern democracy wanted, 
of what must occur when problems of knowledge are at- 
tacked in psychological laboratories. But when all is 
said and done we must grant the leadership of German 
economic methodology since 1900, as indeed it remained 
uncontested in both metaphysics and logic. 

In Germany, then, the revulsion of feeling that fol- 
lowed the triumph of scientific materialism precipitated 
lively debates on the limits of all human knowledge, and 
of natural science in particular. Vitalism and Fichtean- 
ism, Neo-Kantism and Voluntarism ^^ were samples of 

" For typical statements on this subject, by Voluntarists mainly, 
see: Muensterberg, H., "Philosophic der Werte," 1908 (e.g., pp. 20, 
141) and its American version as "Eternal Values," p. 155; the same 
author's "Psychology," 1914, especially chs. 2, 21, 24; Stein, L., 
"Philosophische Stroemungen der Gegenwart," 1908, p. 341; Rickert, 



THE PROBLEM 29 

the movement which tried to reinstate idealism after 
evolutionism had failed to answer all queries. It was 
preached once more that monism, unless it be a trans- 
cendental idealism, cannot satisfy the human craving; 
that between mind and matter there is, empirically viewed, 
an unremovable chasm; that will is one thing, and law 
another; and that man either valuated events, in which 
case he ceased to be a scientist, or described them simply 
in an objective manner, in which case he could never treat 
of social phenomena. The difference between a knower 
and something known was again made clear. The dual 
aspect of all knowledge was illustrated in a hundred 
ways. Arguments were advanced not only for separat- 
ing ethics from science, and the purposes of the phi- 
losopher from those of a scientist, but what is more, 
sciences themselves were classified according to whether 
they dealt with psychical and physical data, or with 
historical or non-historical facts. Ethics, consequently, 
was put aside as something sui generis, and this irrespec- 
tive of whether its roots were traced in biology and prin- 
ciples of the learning process, or in metaphysics pure 
and simple. But in the second place, it was contended 
by many ^^ that law and causation do not obtain in 

H., "Grenzen der Natur-Wissenschaftlichen Begriffsbildung," 1902, 
and his "Kultur- und Natur-Wissenschaft, edit, of 1915. For a criti- 
cism of Rickert see Muensterberg, H., "Philosophic der Werte," 
where all sciences are treated as value- judgments; Becher, E., 
"Natur-Philosophie," 1914; and Schmeidler, B., in Annalen der Natur- 
Philosophie, 1904, pp. 24-70. For other treatments of science more 
or less from an axiological standpoint bearing on a classifi- 
cation of sciences, see: Windelband, W., "Einleitung in die Philoso- 
phic," 1914, Part I, § 13; the same writer's "Logic," in "Encyclo- 
pedia of Philosophical Sciences," 1913, vol. I, pp. 48-9; and par- 
ticularly his "Geschichte und Naturwissenschaft," 1894. 

^ For instance in Zeitschrift f. Sozialw., 1910, five articles by 
Pohle, L., and in Conrad's Jahrb., 1903, article by Bunzel, G., pp. 
433-91, 



30 A CRITIQUE OF ECONOMICS 

socio-economic events, or that at any rate a vital dif- 
ference existed between an historical and an economic- 
scientific approach to human affairs. 

The distinction between a study of individual facts and 
classes of events was, to be sure, an old one. At bottom 
it was Kantian and could not be escaped, once one op- 
posed a critique of pure reason to a critique of practical 
reason. Furthermore, Schopenhauer ^^ had called atten- 
tion to the difference between the work of the historian 
and that of science, though this seems to have been for- 
gotten. But certainly this cleavage-line was drawn again 
with greater nicety and elaboration of arguments, the 
economists, beginning with Menger, using it as a weapon 
against the Historical school or against the claims of 
the Verein fuer Sozial-Politik. Thus, in the end, a host 
of methodological questions were resuscitated and by 
most of the writers answered in favor of a causal basis 
of economic laws, statistical methods gaining by the de- 
cision, while the right or power of psychologists to guide 
the economist became doubtful. To a degree therefore 
Voluntarism did for German economists what the latest 
doctrines in psychology did for economists in America 
and England: It pointed a way for the abandonment of 
eighteenth century sensationalism and forced a decision 
on two questions, viz. first, whether economics should 
seek to get along without any psychology, and secondly 
whether it was a science of causal relations capable of 
being formulated into laws. In spite of its metaphysical 
origins economic methodology had thus assumed new defi- 
niteness, breaking at certain points with an older logic. 

"^ Schopenhauer, A., "World as Will and Idea" (transl. by Haldane 
and Kemp, 1891), vol. 3, ch. 38. 



THE PROBLEM 31 

The Methodological Question. — There is, however, an- 
other way of stating the problem as economists to-day 
must face it. It is not necessary that we commit our- 
selves at once on the difference between historical and 
non-historical sciences, or between law or causation on 
the one side, and willed acts on the other, or between 
mechanistic and telic norms of empirical data. Such 
topics may fitly form a part of our discussion, if we wish 
to exhaust our subject: but a briefer way would be to 
remember that much of the traditional methodology of 
economics rests on that very psychology which now 
few deem worthy of serious consideration. Sensational- 
ism, a formal logic handed down from the Middle Ages, 
and a theory of induction whose Canons J. S. Mill has 
given widest currency — these are the backbone of Utili- 
tarian-Marginal methodology. Catallactics, as already 
remarked, was derived from this hedonistic philosophy. 
Ethics was in most cases allowed to be a metaphysical, 
and not a scientific, problem. The delimitation of sci- 
ences rested principally on a grouping of things per- 
ceptually apprehended ; while applied economics, so far 
as laissez faire had any room for it, was based not only 
on the laws of consciousness and behavior known to sen- 
sationalism, but in part also on certain physical facts 
which the economists retained within their survey, catal- 
lactics notwithstanding. As to method, we need not 
repeat that the deductive method connected closely with 
the subject matter of formal logic; that statics owed 
most to sensationalism; and that statistics at the time 
was so much in its infancy that it could scarcely be men- 
tioned as a distinctly useful, not to say essential, device 
for economists. Whatever was most important in the 



32 A CRITIQUE OF ECONOMICS 

orthodox methodology (by which is meant here that of 
classical, neoclassical, and marginal economics) took its 
main support from sensationalism and formal logic. The 
remainder, while of import, took a secondary position. 

Now, if economics is to become more strictly than 
heretofore a factual science, reducing abstractions to a 
minimum and taking the world in substance as it is, the 
key to an economic methodology will lie, not in rules of 
deduction prescribed by the logician, or in principles of 
association and of ideation a la Hartley or James Mill, 
but in modern psychology, in the observation of what 
science actually does to obtain its generalizations, and in 
a careful analysis of law and causation free from all 
historical bias. Submit your views on law and causa- 
tion, and you have decided other questions pertaining to 
the methodology of any science. Explain the nature of 
inference, particularly comparing it with the measure- 
ments of science, and you have added further materials 
to the building of an economic methodology. The answer 
as to what is acceptable if eighteenth century notions 
are to be repudiated is given by the examination of these 
matters just alluded to. Epistemology and logic in- 
variably must determine the character of a methodologi- 
cal creed. Whatever aids they may invoke in stating 
their case will prove consequential for the student of 
methods. 

If then it is borne in mind that a law of nature has a 
subjective aspect as well as an objective, and that laws 
are statements of elements united in time or space as well 
as of relative quantities of such elements, the limits of 
scientific knowledge will be sufficiently comprehensible. 
It will be part of our task to emphasize the selective 



THE PROBLEM 33 

principle governing the formulation of laws, to compare 
different sorts of units involved in these laws, to dis- 
tinguish between personal and epistemological sub- 
jectivity, to state fully the difference between quantita- 
tive and qualitative relations, and thus to establish a 
line of demarcation between broad groups of sciences as 
well as between, possibly, economics and its allied fields. 

What is the difference, if any, between a law and a 
correlation? This is a not insignificant question to be 
answered. What are the variables that all sciences deal 
with, and what those peculiar to organic existence, thanks 
to which especially the work of social philosophers is 
made so arduous and, in a sense, unsatisfactory? What 
will be our preference — a deductive-reflective method or 
a statistical investigation — if we view the variables of 
economics as complex units incompletely known, to be 
correlated only within vague units of space and time? 
What exactly is responsible for the instability of socio- 
economic data and generalizations, and how are we to 
link up such events with the facts studied by psychology? 
And again, what follows for the scope of economics, for 
applied economics, and for ethics, if a genuinely realistic, 
yet dualistic view is taken of law and causation, or of 
human knowledge? 

As to ethics, is an empirical attitude reconcilable with 
its exclusion from economics, or is there a real point 
of contact between the two? By what route are we to 
arrive at moral judgments without conjuring with trans- 
cendental concepts? 

If it is meet that any science be bounded theoretically, 
independent of what the results of research seem to de- 
mand or not to demand, must it be via other sciences, or 



34 A CRITIQUE OF ECONOMICS 

through a proper understanding of law and causation? 
On what grounds, for instance, may we classify sciences 
or set bounds to any one as a basic or special science? 
What must govern our delimitation of economics, either 
relative to other spheres of inquiry, or without reference 
to them directly? 

How far is it logical to speak of an "applied'* eco- 
nomics if we remember the nature of scientific law and 
of the dialectic of mind and human progress? Should 
government be treated as an integral part of economic 
data, or does it stand aside as a benefitee, like the engi- 
neer who exploits the constants of a physical environ- 
ment? Is it a case of science versus art, or should we be 
more eager to acknowledge the transiency of any public 
policy whatsoever, emancipating ourselves from a socio- 
logical appeal? 

The contradistinction between causation and volition 
which modern philosophers have often made is not of 
course without force or practical value. But can we 
cling to the older hope of detecting the exact cause? Or 
rather, shall we be sure of finding even approximate 
causes, if laws are qualitative as well as quantitative ex- 
pressions? What follows if we recognize the selective 
grounds of a law of nature, its hypothetical values? 
What does the modern view of causation add to, or sub- 
tract from, particularly that of the British empiricists 
who in J. S. Mill's Logic ^^ perfected Canons of Induc- 
tion in a most positivistic spirit? That cause and effect 
are not what a common sense man would guess has long 
been admitted. But apart from that, should we accord 
to causation anything whatsoever that is not given in the 

•* Book I, chs. 1 and 4. 



THE PROBLEM 35 

idea of a law? And if we revise our idea of causa- 
tion in the light of prevailing conceptions of scientific 
knowledge, can we continue to use a theory of imputa- 
tion, as economists have done, implying the possibility of 
measuring factorial shares, nay, of specifying all the 
determinants of values? 

The skeptical attitude however which, it may appear 
at first sight, is thus cultivated with regard to funda- 
mental tenets in methodology, cannot deter us from 
granting to measurements a central position. in any scien- 
tific realm. On the contrary, it goes without saying that 
measurement must be separated from inference as such, 
and that both together constitute science in its functional 
aspects. But how shall we interpret the words deduction 
and induction which have for so many years figured in 
economic methodology? Is deduction to be taken in the 
formal logical sense or not? Is the one operative exclu- 
sive of the other or not? Do we mean by a deductive 
economic method what the logician means by deduction 
or syllogistic reasoning? Is proof in either case the 
same as verification, and must statics be necessarily a 
deduction of conclusions from select formal premises? 

The mathematical method, as everybody knows, has 
often been differentiated not only from the inductive, but 
also from the introspective, procedure of professional 
philosophers and of other inquirers. ^^ But what is our 

'^The following notably: Eulenburg, F., Archiv. f. Sozialw. u. Pol., 
1911, p. 767, 1905, pp. 519-54; for 1910, pp. 711-78; for 1911, pp. 
689-780, e.g., p. 747; Haas, A., in SchmoUer's Jahrb., 1917, vol. 41, 
No. 2; Weber, M., ibidem, for 1905, pp. 1323-84, where the logical 
problem of Historical economics is reviewed; Weber, M., in Archiv. 
f. Sozialw. u. Pol., 1904, article on "Objektivitaet Sozialwissenschaft- 
licher und Politischer Erkenntnis; Kistiakowski, Th., "Gesellschaft 
und Einzelwesen," 1899; Vierkandt, A., in Zeitschr. f. Sozialw., 1912, 



36 A CRITIQUE OF ECONOMICS 

reason for this distinction which, by implication, endows 
mathematics with peculiar virtues ? What can this latter 
really do that the standard methods of science, or in- 
ference as such, cannot accomplish? Is the proof of 
mathematicians an end comparable with that of scien- 
tists? Or is there need of emphasizing the difficulties in 
the way of making something true — difficulties which the 
syllogism very properly brushes aside? Manifestly, it 
must be in stating the difference between formal deduc- 
tion and the deductive thinking of science that economists 
will learn how to interpret their own reflections. But 
how should they then contrast induction with deduction? 
Again. Statistics has been called both a science and 
a method.^® Its beginnings, in one sense, antedate the 
founding of economics, but in another they are much 

two articles; Spann, O., Zeitschr. f. Oes. Staatsw., 1908, pp. 1-57. 
See also Schumpeter, J., "Wesen und Hauptinhalt der Theoretischen 
National-Oekonomie," 1908, Preface, and pp. 28, 37, 58, 105-07, 118. 
For psychology as basis of economics see: Wundt, W., "Logik," 2d 
edit., vol. II, Part 2; Ruemelin, G., "Reden und Aufsaetze," vol. I, 
1867: "Ueber den BegriflF eines Sozialen Gesetzes"; and Neumann, 
F. J., in Conrad's Jahrb., 1898, pp. 19-20. For writers denying the 
existence of real causal socio-economic laws see: Stammler, R., 
"Wirtschaft und Recht nach der Materialistischen GeschichtsaufFas- 
sung," 1896, and the same author's "Lehre von dem Richtigen Recht," 
1902; Janssen, O., Das Wesen der Oesetzesbildung, 1910, pp. 221-23; 
Stolzmann, R., "Grundzuege einer Philosophic der Volkswirtschaft," 
1920; Biermann, W. E., in Conrad's Jahrb., 1904, pp. 592-624; and 
notably Gottl. F. von Ottlilienfeld, in Arch. f. Sozialw. u. Pol., vol. 
23, pp. 403-70; vol. 24, pp. 265-326; and vol. 28, pp. 72-100. Gottl. 
takes a middle ground, but leans favorably toward Rickert's view of 
science and history. 

"For discussions on statistics as method see: Sigwart, C, "Logik," 
vol. 2; Lexis, W. (who made valuable contributions to the statistical 
theory of induction), in Conrad's Jahrb., 1879 and 1886, and his 
"Abhandlungen zur Theorie der Bevoelkerungs und Moral Statistik," 
1903, For men considering statistics an independent science see: 
Ruemelin, G., "Reden und Aufsaetze," vol. I, 1875; Mayr, G., in 
Allgemeines Stautswissenschaftliches Archiv., vol. 11, 1918-19, pp. 
1-50; Seutemann, K., in SchmoUer's Jahrb., 1913, pp. 1-36. See also 
Wundt's view in his "Logik," 2d edit., vol. II, pp. 523-27. 



THE PROBLEM 37 

more recent. So far the demand for a statistical study 
of social data has not been urgent, partly because of the 
premises on which catallactics was built, and partly be- 
cause the means and methods of the statistician had not 
been thoroughly understood in earlier days. Yet to-day 
statistics must be assigned a definite place in any method- 
ology, and besides, economists have already expressed 
themselves clearly on the question, taking their cue from 
logicians and mathematicians. What then may be said 
for or against the employment of statistical measure- 
ments, and what at last analysis is our warrant for giv- 
ing them greater weight than heretofore? Remembering 
that all knowledge is conditioned and relative, why should 
we differentiate between the values of experimental gen- 
eralization and those of induction from relative fre- 
quency? In short, how may our beliefs regarding the 
relation of natural to social sciences be squared with 
the principles characterizing the chief methods of 
science ? 

Plan of this Book. — ^All of these topics here broached 
by way of illustrating a fundamental problem in eco- 
nomics cannot of course be discussed in a single volume 
however bulky, and much less in the sketch now offered. 
It is not to be expected that economics will speedily find 
a convenient point from which to start once more upon 
an upward path of dogmatic developments. If tempo- 
rarily it has been yanked out of its familiar tracks, — or 
to change the metaphor — if just now weighty issues hang 
in the balance, it is self-evident that much time must 
elapse before orderly progress and an equilibrium of 
premises and principles, of aims and actions, is restored. 
If from a long-time standpoint periods of construction 



38 A CRITIQUE OF ECONOMICS 

cover generations, destructive criticism also extends over 
many years, if not over decades. 

But though no pretense is made here to doing more 
than stating a problem partly in new terms, and partly 
of epitomizing what has already been done by others, 
notably in the field of doctrines, the work to be done is 
nevertheless sufficiently definite to admit of an outline in 
the rough. The first part of the book thus deals with a 
review of principles of economics, hence is a doctrinal 
Critique; while the second part turns on a consideration 
of methodological questions. 

Or to state our plan still more specifically: 

Chapter Two attempts to show in detail why sen- 
sationalism is untenable, and why the valuation prob- 
lem has come to mean something new to economists. 

Chapters Three to Five seek to give a critical estimate 
of the Utilitarian-Marginal (i.e., classical or neo-classi- 
cal, and marginal) analysis of price, distribution, and 
production respectively. But the treatment will be con- 
cise because much of this work has already been done, or 
because of the wish to keep distinctly in sight the larger 
philosophical questions involved. 

Part Two begins with a restatement of the central 
problem, and then takes up the consideration of the prin- 
ciples of inference f/om the psychological standpoint, 
though with due regard also for the purely logical side. 
What is aimed at ultimately is an answer to the question 
how deduction and induction are related as methods of 
science. 

Chapter Seven discusses law and causation, preparing 
for a later statement on the correct procedure in de- 
limiting sciences, on the value of imputation both from a 



THE PROBLEM 39 

logical and an economic viewpoint, and on the limits of 
induction. 

The methods by which science arrives at laws and de- 
cides upon causal connections are briefly related in the 
next chapter, emphasis being put more upon aspects of 
measurement than upon canons of induction, while on the 
other hand statistics and reflection as distinct methods 
are set off against experimentation and the auxiliary 
adjuncts of exact science. 

With this material for a beacon-light the ninth chapter 
proceeds to discuss the major points of an economic 
methodology. Scope and methods receive attention 
chiefly, but something is said also on the idea of statics, 
on the interrelation of sciences, and on ethics as a nor- 
mative discipline diff"ering from mere description. 

Finally, in the tenth chapter a program of reconstruc- 
tion is added to a summary statement of what economists 
will probably have to abandon in order to be most suc- 
cessful. What is to be retained, and what seems suitable 
for investigation both by way of rejecting catallactics 
and by way of approaching the problem statistically, is 
a subject mentioned in the last pages. All in all, then, 
the doctrinal and methodological questions of the day are 
treated with a view to positive results, but that is not to 
intimate that theory has not rights of its own, or that 
a critique must do more than point out defects and 
obstacles ahead. 

The real question is after all : How did the existing 
difficulties in economics arise, and what can a definite 
methodology mean to men who are in search of laws 
rather than of individual facts pertaining to a single 
economic system.'' 



PART ONE 

A CRITIQUE OF ECONOMIC 
PRINCIPLES 



CHAPTER TWO 

VALUATION 

Sensationalism as a Theory of Valuation. — There is no 
better book to help us appreciate the exact nature of the 
psychological premises back of Utilitarian or Marginal 
economics than James Mill's "Analysis of the Phenomena 
of the Human Mind." ^ It was not only the most com- 
plete account ever given in the English language of sen- 
sationalism, but it also exercised a lasting influence upon 
"classical" economists from Malthus up, and this in spite 
of the fact that Mill himself added but little to the knowl- 
edge of his day. James Mill, the father of John Stuart 
Mill, was not an innovator so much as a popularizer, a man 
of extensive interests and remarkable powers of presen- 
tation, who took what he found and reformulated it so 
as to sum up concisely the views of his age. Sensational- 
ism, which had its inception in Hobbes and Locke, and 
had reached full development in Hartley and Hume, was 
put to new uses by Bentham, and made eminently plaus- 
ible and respectable by Mill, his contemporary. In this 
way J. S. Mill and many others became familiar with the 
associationistic hedonism of the eighteenth century. In 
this way British Utilitarian economics served as an in- 
termediary for passing hedonism on to Marginism. And 

* The edition here used is that of 1869, annotated by J. S. Mill and 
A. Bain. Most important chapters: Vol. I, chs. 2, 3, 5-6, 10; vol. II, 
chs. 16-22, and 24. 

43 



44 A CRITIQUE OF ECONOMICS 

precisely on these assumptions elaborately expounded 
by Hartley and James Mill the subjectivistic economists 
(the Marginists) proceeded to unfold their doctrines of 
value, price, and income. If not always inspired directly 
by this sensationalism they none the less thought in its 
terms, the works of Jennings and Jevons setting a good 
example.^" In England and America most, but among 
European continental writers too, it was understood that 
valuations had a feeling basis, that these feelings had 
their roots in ideas, that pain and pleasure were meas- 
urable quantities determining wants, and that through 
wants in this sense economic demand helped to determine 
market prices. 

Now, Sensationalism divided psychology into three 
main parts, the first leading to the second, and this to 
the third. Cognition, Affection, and Volition were the 
principal topics for discussion, the theory of desire 
(which necessarily has importance for us) being a deriva- 
tive of the doctrine of feeling and ideas. 

Sensations were the primary facts which accounted for 
everything else. The experiences gathered through the 
five senses became ideas, subject to certain laws of asso- 
ciation and of memory. "Our ideas spring up, or exist, 
in the order in which the sensations existed, of which they 
are the copies." ^ Not only is the order in which the more 
complex mental phenomena follow or accompany one an- 
other reducible, by an analysis similar in kind to the 
Newtonian, to a comparatively small number of laws of 
succession among simpler facts, connected as cause and 

**See for instance Jevons, W. S., "Theory of Political Economy," 
edit, of 1879, chs. 1-2; and Jennings, R., "Natural Elements of 
Political Economy," 1855, pp. 181-92. 

' Mill, "Analysis," vol. I, p. 78. 



VALUATION 45 

effect, but the phenomena themselves can mostly be 
shown, by an analysis resembling those of chemistry, to 
be made up of simpler phenomena." ^ 

The old notion of establishing a parallel between the 
facts of the physical world and those of the mind is here 
seen to rise to the surface again. It was one of the 
cherished dreams of the eighteenth century to do for 
social events what the preceding epoch had done for 
physical events ; and this faith in a set of laws governing 
the mind and human conduct wasn't shaken until trans- 
cendentalism gave rise to a new theory of knowledge. 

The key to sensationalism as a theory of knowledge 
lay, however, not in this monism, but in the principles of 
association which Aristotle had first announced, and to 
which the British thinkers reverted in a heroic attempt to 
explain knowledge "empirically." The fact that we con- 
nect events in time and space, that sequence and con- 
tiguity are common relations, and that differences or re- 
semblances impress us from the beginning of life, — this 
fact was made the basis for a doctrine that by chains of 
reasoning we copy faithfully the relations outside. 
Through association impressions were welded into ideas 
or concepts. Through association individual ideas were 
built into concatenations that underlay argument and ex- 
position, narration and description. In short, the laws of 
association were held to give regularity to human thought, 
just as the universality of certain sense impressions pro- 
vided a common bond among all people. Hence, what 
could follow but uniformity of beliefs and a transfer of 
experiences through memory from one object to another.'' 
The workings of the human mind seemed explicable, once 
^Preface, p. viii, written by editors. 



46 A CRITIQUE OF ECONOMICS 

the supreme principle of association was applied to both 
ideas and to feelings. In the words of Mill: "Not only 
do simple ideas, by strong association, run together and 
form complex ideas, but a complex idea, when the sim- 
ple ideas which compose it have become so consolidated 
that it always appears as one, is capable of entering into 
combinations with other ideas, both simple and complex." 
Thus "brick is one complex idea, mortar is another . . . ; 
these ideas, with ideas of position and quantity, compose 
my idea of a wall." ^ 

Physical data somehow were transformed into psychi- 
cal ones, and marvelously intricate events of conscious- 
ness appeared to have a tangible basis in senses respond- 
ing to outside stimuli.^ Feelings could therefore not be 
anything but sensation "sensed" in a certain way. The 
primary stuff was the sensation itself; the state of feel- 
ing a compound of ideas and bodily conditions, and in- 
variably either pleasant or painful to experience. "Sen- 
sations and ideas are both feelings"; and "having a 
sensation and having a feeling are not two things." ® 
Through re-arousal from within sensations originally re- 
ceived from without were brought back to life, so to say; 
Hence, whatever intensity the idea boasted at the first 
was transmitted in the re-arousal to the accompanying 
feeling. All sensations were resurrected in full strength 
through the agency of thought. An intellectualistic 
theory of feelings was thus developed by the British psy- 
chologists. Feelings, according to Th. Brown and Mill, 

*Vol. I, p. 115. 

= Compare this with Russell's (B.) statement: "All psychic phe- 
nomena are built up out of sensations and images alone," in his 
"Analysis of Mind," lO.n, pp. 279 and 297. 

« MiU, "Analysis," vol. I, pp. 224-25. 



VALUATION 47 

followed the laws of association exactly as ideas did. 
Feelings had only quantitative, not qualitative aspects. 
The main point was the rebirth of feeling (through mem- 
ory) in its first vigor, and the reduction of all feelings to 
two psychic magnitudes, viz., pain and pleasure. "To 
have an idea and the feeling of that idea," we are told, 
"are not two things ; the feeling and the consciousness are 
but two names for the same thing." "^ An idea is a feeling 
that "exists after the object of sense has ceased to be 
present." ^ Again : "It is easy to prove that the idea 
which forms part of memory is called up in the same way, 
and no other. . . . The idea or the sensation which 
preceded the memory is one of those which are calculated, 
according to laws of association, to call up the idea in- 
volved in that case of memory"; and it is "by the pre- 
ceding idea or sensation that the idea of memory was in 
reality brought into the mind." ^ And again from Th. 
Brown, the author of "Lectures on the Philosophy of the 
Human Mind" : "The past feelings of the mind are, as it 
were, objects present to the mind itself, and acquire thus 
truly a sort of relative existence which enables us to 
class the phenomena of our own spiritual being as we class 
the phenomena of the world without." ^^ Memories of 
feelings, then, are real, and what we felt at the moment 
the external stimulus acted upon us we rehearse men- 
tally, or rather feel once more upon recollection. But 
recollection itself operates through associations, so that 
feelings are associated with things not because these 

^ Ibidem. 
^Ibidem, p. 52. 
^Ibidem, p. 321. 

"Edition of 1854, published by Masters, Smith & Co., vol. I, 
Lect. 9. 



48 A CRITIQUE OF ECONOMICS 

themselves originally aroused them, but because these 
things are connected retrospectively with other facts that 
gave rise to those feelings. 

From all this it follows that desire is largely a function 
of associations. But of course it was also understood, 
for other reasons, that we desire chiefly or solely what 
gives us pleasure, abhorring what is painful. Hedonists 
from the start had no hesitancy in accepting this axiom, 
since it seemed reasonable that pleasurable experiences 
were life preserving — the exceptions being insignificant — 
while painful events injured the Self. On this supposi- 
tion, therefore, pleasure and pain became synonyms for 
desire and aversion, or for life preserving and life men- 
acing facts, or for useful and injurious things, or in fine 
for good and evil. Utilitarianism had its root in this 
rather naive view of ethics, although it gradually quali- 
fied its defense of self-interest. J. S. Mill, as is well 
known, made it his duty to bring out clearly the social 
aspects of utility. In effect hedonism was really dis- 
carded and something else substituted, notwithstanding 
the retention of the older word. 

People, then, desired things in proportion to their in- 
tensity of pleasantness, and shunned them according to 
their painfulness. Memories brought back the full quota 
of pain or pleasure. Wants were the proof of value in the 
sense of pleasurable events being "good" or at least 
"valuable." Hence, to want anything was to demon- 
strate its value. And since most sources of pleasure con- 
sisted of economic goods. Nature being chary of her 
gifts, wealth turned out to be a prime fountain of pleas- 
ures and wants. Abstinence, conversely, was painful ; for 
not to consume was to miss the pleasant sensations ex- 



VALUATION 49 

cited by inner or outer use of commodities. Just as labor 
figured as a source of physical discomforts, so postpone- 
ment of consumption seemed necessarily to beget painful 
feelings. Wants always were for the sake of sensations, 
and these would fail in the absence of consumption. Eco- 
nomics consequently had fundamental truths to work 
with. 

To quote once more from Mill : "My state of conscious- 
ness under the sensation (as such) I call a pleasure; my 
state of consciousness under the idea, i.e., the idea itself, 
I call a desire." ^^ Pleasure therefore is the counterpart 
of desire, or vice versa. "The term 'idea of a pleasure' ex- 
presses precisely the same thing as the term 'desire.' " ^^ 
"The idea of every pleasure associated with that of an 
action of ours as the cause is a motive." ^^ People are 
actuated in that manner. Through ideas as bearers of 
pleasant reminiscences actions are initiated that express 
the desire for things, if action be needed to satisfy that 
longing. "The action of muscles follows, as an effect its 
cause, first upon sensations, secondly upon ideas." -^^ To 
put this last thought more clearly: Sensationalism was a 
theory of action as well as a theory of thought. It not 
only gave the reasons why sense gratification would be a 
key to judgments of value, or to values regardless of 
judgments, but it likewise provided a basis for that 
broader policy of Non-interference which began with 
Adam Smith and reached its culminating point in the 
abolition of the Corn-Laws in England. It was under- 
stood, from the basic data of sensationalism, that men 

" Mill, "Analysis," vol. II, p. 191. 
^ Ibidem. 
"Ibidem, p. 258. 
^* Ibidem, p. 348. 



so A CRITIQUE OF ECONOMICS 

would not do what went against their own interests, and 
that they could not pursue ends which, in the long run, 
imperiled the welfare of society. Self-regard was held to 
be a guarantee of social conscience. An identity was 
found between personal and public interests. If a man 
was to produce to the utmost and thereby prove of value 
to his fellowmen, he had to be accorded freedom of con- 
duct no less than liberty of conscience. Let a man find 
out when his toil caused more pain than the fruits of toil 
promised pleasure, and he would correspondingly shorten 
his work -hours. Leave to the average man his rights of 
asserting himself and plying his trade, as his native atti- 
tudes were sure to bid him do, and there would follow 
bold endeavors and a degree of efficiency which would 
excel all the endeavors regulated by the body politic. 
Thus, through a postulate of dominant acquisitiveness 
and maximum incentive in unrestrained contests among 
individuals of unequal capacities and tastes, there was 
reached a major conclusion on the relation of the indi- 
vidual to society, and of self-expression to prosperity, 
whose force did not spend itself for nearly a century, 
and whose impress upon many a treatise on economics can 
plainly be seen. Economics since 1800, indeed, is hardly 
intelligible without this grasp of the twofold root of 
laissez faire which grew out of an eighteen century soil. 
Sensationalism both as a theory of valuation, and as a 
theory of motivation for activity exercised an abiding 
influence upon students of social processes. 

Modern View of Feelings. — If, now, we inquire into the 
validity of this set of doctrines we are, of course, met first 
of all with the well-known fact that for a long time psy- 
chologists have worked along other lines, rejecting the 



VALUATION 51 

bulk of associational and hedonistic teachings, and build- 
ing their generalizations on facts which, if not always 
experimentally established, were certainly freed from the 
dangerous a priori assumptions that earlier thinkers 
deemed perfectly safe. The psychological theory of valu- 
ation to-day is quite different from what has here been 
presented as sensationalism. But furthermore, the ques- 
tion of value and of valuation has been given a larger 
setting, so that by the end of last century there arose a 
theory of axiology which, as remarked in the preceding 
chapter, brought to the fore many subjects of a philo- 
sophical and logical or esthetic nature. In general, the 
valuation process has been found to embrace so much 
more than was once suspected, and has been made to in- 
clude so many phases of consciousness and reasoning, that 
it would be impossible in a few pages to do justice to it. 
Philosophers as much as psychologists have occupied 
themselves with the principal topics. Theories of logic 
and of epistemology have revolved about the analysis of 
valuation or of value. It has been concluded, largely 
from this angle, by one writer that "value is irreducible 
to such existential categories as pleasure, satisfaction, or 
causality." ^^ A dualistic viewpoint has separated value 
from events or their regularities.-'^^ A considerable liter- 
ature has dealt with the subject, but without yielding 
agreement on more than a fraction of the points brought 
up for discussion. By one authority of excellent repute 

""Brogan, A. P., in /. of Philos., 1921, pp. 197-209. See also: 
Moore, J. S., in same journal, 1910, pp. 282 if. on deiinitions of 
value; Montague, W. P., 1914, pp. 353 ff.; and Perry, R. B., 1914, 
pp. 141 ff. 

"See for instance Simmel, G., "Philosophie des Geldes," 2d edit., 
p. 4; and discussion of Voluntarism in Chapter One of this book. 



52 A CRITIQUE OF ECONOMICS 

we are told in 1915: "It is probable that psychological 
analysis has said very nearly all it can" ^"^ on the matter ; 
but by another five years later: "... the study of 
values, far from having been completed in the existing 
literature, is yet in its youth." ^^ Thus it would be pre- 
sumptuous to examine more than a small portion of the 
opinion now authoritative on the essentials of valuation. 
But it is nevertheless possible to treat them from a purely 
psychological viewpoint, stating what seems most nearly 
secure in the eyes of psychology, and indicating in this 
manner the errors of sensationalism, or by implication 
those which will compel economists to abandon the project 
of correlating prices quantitatively with psychic states. 
We note then first of all that, even though we identify 
all states of feeling with values or states of valuation — ■ 
an assumption not demanded by facts, — these feelings 
are not for the most part of the kind that sensationalism 
considered. That is to say, pleasure is not the same as 
pleasantness, nor does a special sense of pleasure exist. 
There is a sensation of pain, as experiments have proven, 
and for it nerve endings have been located. But this is 
not true of pleasure, nor even of pleasantness in another 
meaning of the word. "Pleasant sensations," so far from 
being one of the most important facts of psychology, 
"have no existence" ;^^ such is the modern view ; and to 

" Urban, W. M., in Psychological Bulletin, 1915, p. 218. 

^ Picard, M., in Journal of Philosophy, Psych, and Scientific 
Method, 1920, pp. 11-20. 

"•Pillsbury, W. B., "Fundamentals of Psychology," 1916, pp. 449, 
451. On differentiation between pleasure and pleasantness see also 
Moore, H. Th., "Pain and Pleasure," 1917, chs. 1-4; Young, P, T., in 
Am. J. of Psych., vol. 32, pp. 52-3; Wohlgemuth, A., in Brit. J. of 
Psych., 1919; Lipps, Th., in his "Psychologische Untersuchungen," 
1912, vol. II, Part I, pp. 81-110. Others of similar opinion: Kueipe, 
Marshall, Fite, and Miss Calkins. 



VALUATION 63 

this might be added the reminder that, if by pleasure 
states-of-pleasantness are meant, then the persistent seek- 
ing of it will inevitably defeat its own end, as experience 
has taught many a one to his chagrin. 

But to go farther. While some difference of opinion 
exists ^° as to the relation of sensation to feeling, or of 
the latter to affection, it is granted by most that the first 
two are by no means the same thing. "The feelings," it is 
widely understood, "cannot be identified with any periph- 
eral nervous mechanism or process," ^^ which certainly 
is true of sensations. "Affective elements have no special 
physical stimuli, and in this respect resemble visceral sen- 
sation." ^^ Or in the words of another authority : "Feel- 
ing is as much subjective as attention, while sensation is 
dependent altogether upon the physical environment. It 
is in this sense that feelings are subjective, sensations ob- 
jective; and coupled with this subjective character of 
feelings is the further fact that an experience, when re- 
called, does not always have the same feeling as at 
first." ^^ "Ordinarily feelings arise through excitation by 
some stimulus, and are closely connected in origin with 
sensations. But we may have both feelings and sensa- 
tions from the same stimulus at the same time, and can 
always distinguish them." ^^ "Affections are always co- 
extensive with consciousness, diffused over all the sensory 
contents present at the time; and ... if the pleasant- 

"" For identification of feelings and sensations see, e.g., Messer, A., 
"Empfindung und Denken," 1908, pp. 10-33. A Review of contro- 
versy is given in the Psych. Rev. of 1908, by Meyer, M.: "Nervous 
Correlate of Pleasantness and Unpleasantness." 

"Dunlap, K., "System of Psychology," 1912, p. 244. 

^Ibidem, p. 245. But see also p. 250. 

^ Pillsbury, W. B., "Essentials of Psychology," edit, of 1911, p. 260, 

'* Ibidem. 



54* A CRITIQUE OF ECONOMICS 

ness of a taste is localized in the mouth [a point used by 
others to identify feelings and sensations], that is simply 
because consciousness itself, under the experimental con- 
ditions, has been narrowed down to a taste-conscious- 
ness." ^^ To be sure, feelings like sensations have dura- 
tion, intensity, and quality, but only sensation has the 
attribute of clearness in addition, while "we cannot at- 
tend to an affection.'* ^^ Like sensation, affection does 
probably follow certain laws of a quantitative relation 
between stimulus and response, but generally speaking 
it seems certain that "affection depends less upon the 
several and separate attributes of stimulus than upon 
their combination.'* ^^ "The affection of any given mo- 
ment depends upon the interplay or concurrence of sen- 
sory processes that are combined in a certain conscious 
pattern." ^® Thus, all things considered, sensations must 
be differentiated from feelings. As a recent experimenter 
put it : "Feeling-elements are not attributes or func- 
tions of sensations or other cognitive processes, but a 
separate class of conscious processes." ^^ 

Furthermore, so far as pleasure or pleasantness alone 
is concerned, the hedonistic view of a simple sensation 
has been replaced by a physiological one that, while 
equally appreciative of the survival function of pain- 
pleasure, takes much more account of their emotional 

"Titchener, E. B., "Textbook on Psychology," 1910, p. 234; also 
§§ 69-70. 

^^ Ibidem, p. 231. 

^■•Ibidem, p. 259. 

'^Ibidem, p. 258. 

=>» Wohlgemuth, A., in Brit. J. of Psych., 1919, p. 210. See also 
Warren, H. C, "Human Psychology," 1920, p. 279; Hunter, W. S., 
"General Psychology," 1919, pp. 204-07; Jodl, F., "Lehrbuch der 
Psychologic," edit, of 1916, vol. II, p. 13. 



VALUATION 56 

and organic-klnesthetic accompaniments. Feelings of 
pleasure, so far from originating principally in sensuali- 
ties, have been studied as an expression of surplus energy, 
as a by-product of acts of adjustment to difficulties and 
surroundings in general, or as a solution of tasks de- 
liberately or involuntarily shouldered. In other words, 
an ideological background has been given to what once 
appeared to be purely physical data. "Pleasure," we 
are informed by one writer, "is primarily the character- 
istic emotional tone of affect which accompanies the suc- 
cessful discharge of libido along a conative channel, and 
the attainment of the appropriate end." ^^ The whole 
body and being is involved in such experiences. *'Con- 
duction by units [i. e., the neural] in readiness is satis- 
fying, while conduction by units in unreadiness and readi- 
ness without conduction, are annoying." ^^ From a 
biological standpoint pleasure thus appears to mean feel- 
ings of harmony resulting from a successful execution 
of plans, from a sort of balancing of outgo and income, 
or from a smooth working of metabolic processes. Sen- 
sory and motor reactions are pictured as complementaries 
that produce pleasant states of consciousness even when 
they cannot be localized. "When any original behavior- 
series is started and operates successfully, its activities 
are satisfying, and the situations which they produce, 
also" ; ^^ or in the words of a European writer : Pleasure 
is the "proof of an unhampered psychic process 

^oTansley, A. G., "The New Psychology and Its Relation to Life," 
1920, p. 67. 

^ Thorndike, E. L., "Original Nature of Man," 1913, p. 128 (vol. I 
of his "Educational Psychology"). 

^ Ibidem, p. 124. 



56 A CRITIQUE OF ECONOMICS 

attaining its object conformable to its natural inclina- 
tions." ^^ 

Such affective conditions, it has been said by some, 
may be remembered; and notably a French group of 
psychologists has treated of memory and logic as a prob- 
lem in feelings.^^ The majority of students, however, 
have taken the opposite stand, denying that what is 
remembered is the feeling itself. "To have an affective 
memory," we are reminded by one authority, "is to be 
able to reinstate or recall an affective process which has 
once been experienced" ; ^^ but the prevailing opinion 
may perhaps be stated in this remark by an American 
that "if we identify feeling with one of its aspects, pleas- 
antness — unpleasantness, and then ask whether an hedonic 
tone may be recalled, there is indeed none but a negative 
answer to that question." ^^ Nor do the leading prin- 
ciples of association provide a theory of valuation through 
rearoused experiences of pleasure, for researches so far 
indicate that "there is no constant relation between the 



^Nadejde, D., "Biologische Theorie der Lust und Unlust," 1908, 
p. 72. Similarly Marshall, H. R., "Pain, Pleasure, and Esthetics," 
1894, p. 347; MacFarlane, J. M., "Causes and Course of Organic 
Evolution," p. 616; Moore, H. Th., "Pleasure and Pain," 1917, p. 
104, and chs. 1-4; Lipps, Th., "Vom Fuehlen, Wollen und Denken," 
1907, p. 243. That organic-kinesthetic expressions necessarily ac- 
company feeling is denied by Young, P. T., in Am. J. of Psych., 
vol. 32, No. 1, pp. 52-3. 

^ Ribot, Th., "Essai d'Imagination Creatice," 1900; also his "Psy- 
chology of the Emotions" (English transl.), 1897, Part I, chs. 11-12; 
Stump f, C, "Ton-Psychologie," 1883, vol. I, pp. 1-133; Witasek, St., 
"Grundlinien der Psychologic," 1908, pp. 55-63, showing Freudian 
applications; Storring, G., "Psychologie des Menschlichen Gefiihls- 
lebens," 1916, pp. 90-1. 

^ Hunter, W. S., "General Psychology," 1919, p. 212. 

»« Urban, W. M., "Valuation," 1908, p. 114; 120-30. See also 
Psych. Rev., 1901, pp. 262-78 and 360-70. 



VALUATION 57 

feeling-element of a sense-experience and the feeling-ele- 
ment of an associated idea." ^^ What sensationalism 
therefore had to say on the force of association in actu- 
ating men, and adapting endeavor to transferred aver- 
sions or preferences, can really carry no weight to- 
day. 

More than this, the measurement of both sensations and 
feelings is something quite beyond our abilities, a fact 
which must prove of the utmost importance, of course, in 
any estimate of sensationalistic value theories. 

Not even the developments of psycho-physics, which by 
some have been supposed to make out a good case for sen- 
sationalism, are in reality favorable to it. For though it 
is true that relative intensities of sensations have been 
measured, and constant ratios of increments in stimuli to 
perceivable differences in response exist, these dis- 
coveries cannot avail a theory of valuation in the economic 
sense. Nor do they apply, of course, to feelings as dis- 
tinct from sensations. 

To begin with, the Weber-Fechner law does not meas- 
ure the absolute magnitude of sensations so much as their 
relative intensities. The founders of the law, because of 
the nature of their task, had to select some one degree 
of sensation as a standard for all others, and for their 
purpose made the least just noticeable intensity a zero 
point in their scale, calling it the limen. Interest there- 
after turned on proportions of stimuli and response, and 
on the relation between additions to stimulus and just 
noticeable increases of response. It was found, for ex- 
ample, that "a stimulus must be increased by a certain 
constant ratio in order that the sensation might be just 

*' Wohlgemuth, A., in Brit. J. of Psych., 1919, p. 238. 



58 A CRITIQUE OF ECONOMICS 

noticeably more intense each time." ^^ In the second 
place, however — ignoring the limited field within which 
the law rules, and certain irregularities in the law 
of relative intensities ^'^ — we have to face the important 
fact that almost from the outset differences of opinion 
arose as to the nature of the Weber-Fechner law. 

To the authors themselves it was a psycho-physical 
law which in part was to do for psychology what the 
laws of mechanics did for physics. Yet this is not the 
interpretation commonly accepted to-day, nor do the 
later views support in any way the contentions of sensa- 
tionalism. For if we follow the physiological argument 
(which, incidentally, seems to have the better of it) the 
measurement of sensations becomes a certainty. But then 
modern theories of valuation and our personal experi- 
ences of valuation are not affected, since value is not a 
matter of sensation. To grant then that "the facts avail- 
able indicate that the law [of Weber] is due to the in- 
creasing resistance offered in the nervous system to the 
transmission of the more intense nerve impulses, and that 
the explanation is physiological rather than psychologi- 
cal or purely psychological" ^"^ is not to throw light on 
economic values. On the other hand, if we stand by 
Wundt and others, convinced that "Weber's Law cannot 
be deduced either from the physiological peculiarities of 
the nervous substance, or from a functional relationship 

^Hunter, W. S., "General Psychology," p. 265. But see also 
Dunlap, K., "System of Psychology," 1912, pp. 111-12. For Fech- 
ner's own statement see his "Elemente der Psycho-Physik," 1860, 3d 
edit., ch. 9 of vol. I. See also Titchener, E. B., "Textbook of Psy- 
chology," § § 66-67. 

® Fechner, Th., "Revision der Hauptprobleme der Psycho-Physik," 
1882; Warren, H. C, "Human Psychology," p. 219. 

*» Pillsbury, W. B., "Fundamental of Psychology," 1916, p. 215; 
Mueller, G. E., "Grundlegung der Psycho-Physik," 1878. 



VALUATION 59 

between the physical and the psychical ; for it is founded 
in the psychical processes which are at work in the com- 
parison of sensations. It is in this sense not a law of 
sensations, but a law of apperception" *^ — if we allow 
this, we deny the measurability of sensations, thus leav- 
ing one of the main assertions of the hedonistic school 
unproven. In either case economists must turn to new 
constructions on the psychological side. 

In short, the affective aspects of valuation do not pro- 
vide nearly so simple a solution of the valuation problem 
as had once been thought. Pain is not an opposite of 
pleasure, and the real opposites of pleasantness and un- 
pleasantness are not the simple units that the eighteenth 
century spoke of. We cannot treat them as integers that 
submit to addition and subtraction.^^ There is evidence, 
even, that the two are not mutually exclusive, but may 
coexist as factors of different, incomparable qualities.*^ 
And as for feelings, as distinguished from sensations, we 
have none of the data which Weber and Fechner suc- 
ceeded in building into a physiological law. What ex- 
periments have been conducted, have aimed at indirect 
measurement by correlating affective states with physio- 
logical changes. But the correlations have not so far 
been very satisfactory.** We are told, regarding these 
experiments, that "the feelings show marked bodily ac- 
companiments, but these cannot be said to correspond 

^'Klemm, O., "History of Psychology" (transl. by Wilm, E. C, 
& Pintner, R., 1914), p. 263. 

*^Jodl, F., "Lehrbuch der Psychologic," 4th edit., vol. II, pp. 8-9; 
Lipps, Th., "Leitfaden der Psychologic," 1906, Part Seven. 

^Ibidem. Also: Wohlgemuth, A., in Brit. J. of Psych., 1919, p. 
239; Ebbinghaus, Sully, and McDougall, W., in his "Introduction to 
Social Psychology," p. 156. 

**Jodl, F., "Lehrbuch der Psychologie," 1916, vol. II, pp. 27-8. 



60 A CRITIQUE OF ECONOMICS 

accurately to the differences between pleasantness and 
unpleasantness, although the degree of our feeling car- 
ries with it an approximately corresponding amount or 
intensity in the accompanying physical expression." *^ 
Cognitive Aspects of Value. — So far as the principal 
modern notions on sensation and feeling are concerned, 
therefore, it would matter little for the economist whether 
he leaned toward a feeling or an intellectual view of 
values. It is indeed almost self-evident that values of 
many kinds exist and .that, according to our definition of 
the term, either affective or cognitive phases may be 
stressed. The history of theories of valuation shows this 
instructively. There have been those — particularly at 
the beginning — who have sought the key to it in feelings 
or volitional attitudes arising from feelings, just as the 
sensationalists reduced all appetites to memories of sen- 
sation.^^ But later on the analysis of value has turned 
chiefly on the complexity of the problem, on the necessity 
of subdividing the value class, of acknowledging the dif- 
ference between valuation in its functional aspects, and on 
valuation as a formal judgment. ^^ Yet for the economist 

^Pillsbury, W. B., "Fundamentals," p. 460. 

*°Meinong, A., in "Psychologisch-Ethische Untersuchungen zur 
Wert-Theorie," 1894, but this view was modified a little later (see 
below). Also: Jodl, Kreibig, Simmel, and Haering. Writers stress- 
ing the volitional side are: Eisler, Muensterberg, Frischeisen-Koehler, 
Wundt, Lipps, and Brentano, but especially also: Ehrenfels, Chr. v., 
"Von der Wert-Definition zum Motivationsgesetze," 1896 (pp. 103-22), 
being vol. II of his "System der Wert-Theorie," 1897. Partly in 
agreement with him: Meinong, A., in Archiv f. Systematische Philoso- 
phie, 1895, pp. 327-46, and in his "Annahmen," 1902. See also Perry, 
R. B., in Quarterly J. of Ec, 1916, p. 449. The best one volume 
treatise in English is probably Urban, W. M., "Valuation," 1908, 
dealing with all aspects of the problem. Others: Kraus, O., "Zur 
Theorie des Wertes," 1901, ch. 7, and article in Jahrb. der Philoso- 
phie, 1914; Picard, M., in /. of Phil., Psych., and Scientific Method, 
1920, pp. 16-17. 

« E.g., UrbaTn, W. M., "Valuation." 



VALUATION 61 

this choice in itself is of no moment. For if he does re- 
solve values into affective states, he is still confronted 
with the fact that these latter differ toto coelo from the 
hedonic tone familiar to sensationalists. To trace all 
valuations back to feelings — supposing it seemed neces- 
sary — would consequently not mean a substantiation of 
the psychology back of Utilitarian or Marginal eco- 
nomics. 

There are however two points that need emphasizing 
in the treatment of values as cognitive processes ; and in- 
asmuch as these judgment-values play a prominent role 
especially in economic life, our emphasis can hardly be 
too great. Namely, in the first place, perceptions and 
ideas are never built directly out of sensations, as sensa- 
tionalism believed, and in the second place value-judg- 
ments and feelings have most frequently a social basis, 
so that a strictly individualistic hedonism could not ex- 
plain them. Valuations from the apperceptive stand- 
point, in short, are just as far from being what eigh- 
teenth century writers asserted as they are according to 
current views on the feelings and emotions. 

The nature of perception, ideas, and concepts is 
a commonplace in modern psychological texts, but the 
special purpose to which we put this knowledge will jus- 
tify a few quotations. The hiatus from physiological to 
psychological facts which they make clear must be deemed 
fatal to all sensationalism, whether adapted to epistem- 
ology or to axiology.^^ 

We read in one text: "It is evident that the object 
seen depends not only upon the sensations that affect the 

^For philosophical phases see Chapter Two of this book, section 
on German Voluntarism. 



62 A CRITIQUE OF ECONOMICS 

sense-organ, but also upon the memories that one pos- 
sesses, and the laws of association and recall." ^^ "The 
facts of perception — stand in quite different relations to 
one another from the physical facts which stimulate us 
through the eye and other organs." ^^ The rise of an 
idea, thus, might be explained somewhat as follows ac- 
cording to the same writer: "A sensory stimulus sends a 
nerve impulse to the brain. At some synapse in its cen- 
tral course, part of the impulse is distributed from the 
main path into an adjacent neuron. This overflow cur- 
rent, being less intense, loses its own mode and takes on 
the characteristic mode of the neuron into which it passes, 
this mode being determined by the trace left by past stim- 
ulation. The resulting central process is not a sensa- 
tion, but an idea ; it no longer retains the characteristic 
of its own origin." ^^ This is the dominant view of per- 
ception and ideas, even though on minor points disagree- 
ments exist. Thus there are those who deny that ideas 
are "centrally excited sensations ;" ^^ but even then it is 
granted that "the perception of an object and the proper 
adjustment to it depend not so much on what is directly 
present in the focus of consciousness, but on the wealth 
of accumulated material lying outside the moment- 
focus." ^^ "The image, representation, or idea of a 
table," from this standpoint, "is not itself a table; nor 
is it a synthesized sensory compound referring to the 
object, table; it is a psychic element referring to the sen- 

*9PilIsbury, W. B., "Fundamentals," p. 160, 

^o Warren, H. C, "Human Psychology," 1920, pp. 12, 66, 88. 

''^Ibidem, p. 226. See also Stout, G. F., "Analytical Psychology," 
vol. II, p. 7; Titchener, E. B., "Textbook of Psychology," p. 48. 

"Sidis, B., "Foundations of Normal and Abnormal Psychology," 
1914, p. 138, 

"Ibidem, p, 258, 



VALUATION 63 

sory compound on its objective aspect." ^* In any case, 
perception and ideas have no definite, or fixed, quantita- 
tive relation to the elements in sensation out of which they 
were, according to sensationalism, directly constructed. 
What psychologists generally emphasize is the complex 
nature of percepts and images, or the derivation of per- 
ception from four facts, viz., a present sensation, pres- 
ent relations bound up with the existing sensation, an 
imaginal content, and certain emotional adjuncts (in 
many cases). 

Concepts, also largely for this reason, are some- 
thing very different from the mechanical constructs 
that associational psychology believed; for they are 
really "an imaginative content in which the relations are 
the central feature, and the sensory factors purely inci- 
dental.'* ^^ In concepts relations are the principal theme. 
"Conception is the relational consciousness — of a group, 
or of an object as member of a group." ^^ Thought thus 
is "consciousness of objects not actually stimulating the 
special sense organs through which they were primarily 
perceived," while images are "objects-thought-of." ^^ Or 
to use the phrase of another authority: Thought is dis- 
tinguishable from other mental states, in that its "idea- 
tional components are symbolic," and its "development is 
due almost wholly to the social environment." ^^ 

This last statement points to a further fact about 
ideas in general, and more especially about value- judg- 



" Ibidem, p. 366. 

"Dunlap, K., "System of Psychology," pp. 166-67. 
"» Calkins, M. W., "First Book in Psychology," 4th edit., pp. 146-47. 
" Dunlap, K., "Mysticism, Freudianism, and Scientific Psychology," 
1920, p. 140. 
•^Warren, H. C, "Human Psychology," p. 314. 



64 A CRITIQUE OF ECONOMICS 

ments, namely their social origins in one aspect. Indi- 
vidual psychology deals with one side of cognition and 
trains of thought or of feelings, but sociologists have 
the right to study inter-individual relations, in the light 
of which our personal notions assume a broader signifi- 
cance. Thus it goes without saying that little of what we 
know is, strictly speaking, self-earned, and that every- 
thing we believe or do is influenced by the thoughts and 
actions of our contemporaries. The majority follows, 
and a small minority leads. Innate diff*erences and those 
which life*s experiences and an objective physical envir- 
onment bring out, or accentuate, lead to standardization 
of creed and conduct. All human beings are, by inborn 
predisposition, as fond of subjecting themselves to others, 
as of asserting themselves. Suggestibility is a common 
heritage for men in all ages. Imitation plays its part 
in uniformizing thoughts and purposes. While on the 
one hand our congenital and acquired differences and 
peculiarities prevent a dead level of social expression, on 
the other they also make possible that degree of organi- 
zation which, if not the same as agreement, none the less 
tends to perpetuate conformity. Through natural or ar- 
tificial means of communication, through cooperation in 
many fields, including the economic, and through control 
exercised by virtue of the differentials just mentioned, 
norms are established that obtain over wide regions, sway- 
ing many millions of people. Personality and genius, 
technical expertness of professions and "trades," and 
government in various guises — all this makes for stand- 
ardization. As the spokes of a wheel point from a center 
outward toward the rim, so the influence of the elite, that 
is of leaders in politics, religion, art, science, and in- 



VALUATION 65 

dustry radiates out, establishing contact with the mil- 
lions who look for precept and example. All sorts of 
values are defined by a minority, communicated to the 
masses, and put to the test thereafter. The average per- 
son gives advice of his own, and in a measure contributes 
toward the norms and practices of his age; but the 
greater credit must go to those who excel beyond com- 
parison, and thus give much more than they can possibly 
take. Values owe their definiteness and permanency to 
this circumstance. What habit is to the individual, that 
custom is for society. We learn from infancy by listen- 
ing to elders, by copying the deeds of others, by assimi- 
lating rather than by inventing new means or ends. 
Through social heredity our slender inborn resources are 
made enormously productive and profitable to ourselves. 
We do more by rote than by reflection. Just as move- 
ments of the body become automatic through continued 
exercise, so our ideas and evaluations become stereotyped, 
a reflex of thought elsewhere originated, and proof of 
the power of office, organization, ritual, and personality 
over the destinies of the mediocre. 

Laws of learning and of sociation therefore compel us 
to recognize the plural sources of value, even though we 
individualize necessarily its emotions. All values, the 
economic not excluded, have an impersonal aspect, and 
students in several fields have rendered us a signal service 
in describing these principles. Particularly during re- 
cent decades the sociological phases of value have been 
clearly presented. Economic values presuppose others of 
a more fundamental mission. This has become evident. 
Absolute or non-exchange values rule logically prior to 
market prices, even though most non-economic norms lend 



66 A CRITIQUE OF ECONOMICS 

themselves to a pecuniary scale of measurement.^® Value 
"as an objective social fact is the product of social inter- 
action . . . , but as a product of social interaction it is 
the resultant of modifications of the subjective feelings of 
value of individuals . . .'* ^^ "Economic value is a func- 
tion of interacting and reacting minds." ^^ "No analysis 
of a valuation ever gives us a complex in which values 
are not presupposed." ^^ "Value is an expression of or- 
ganization definite in proportion as it is institutional- 
ized." ^^ "The progress of market valuation, as a rule, 
is a translation into pecuniary terms of values which 
have already become in some measure a social institu- 
tion . . ." ^^ "Both in legal and in economic values we 
have an elaborate and complex system of social psycho- 
logical character, which can by no means be reduced to 
elementary desires or feelings, even though ... no part 
of the system will be found outside the minds of individual 
men." ^^ 

Value in its Volitional Aspect. — It follows from this 
social origin of valuations, which cannot be quantita- 
tively related to individual sensations or even to per- 
cepts, that in their volitional aspects also they are some- 
thing very different from what sensationalists had taught. 
As a theory of motivation also the hedonistic psychology 

™See for instance Veblen, Th., "Economics of Enterprise," 1904; 
Simmel, G., "Die Philosophie des Geldes," 2d edit., 1907, ch. 5, pp. 
387-479. 

=» Urban, W. M., "Valuation," p. 317. 

« Perry, R. B., in Quarterly J. of Ec, 1915-16, p. 475. 

^ Haering, Th., "Untersuchungen zur Psychologic der Wertung," 
quoted by Urban, in Psych. Bulletin, 1915, p. 219. 

<^ Cooley, Ch. H., in Quarterly J. of Ec, 1915, p. 9. 

«* Anderson, B. M., "Value of Money," p. 30. See also his "Social 
Value," 1911; and Ehrenfels, Ch, v., "System der Wert-Theorie," 
vol. I, p. 170. 

*^ Reference mislaid. 



VALUATION 67 

is untenable to-day, not merely because our prevailing 
treatments of ethics are hostile to it, but in the more 
serious sense that our notions of human nature, of in- 
stincts and the emotions, of the modifiability of the in- 
stincts, and of the general law of progress and moral 
developments have little in common with the earlier phi- 
losophy. Partly because of our dissent from the analysis 
of feeling and cognition current among the founders of 
economics, and partly owing to our more accurate under- 
standing of social processes we are obliged to reject 
Bentham's theory of motivation which was derived so 
logically from his theory of values. 

One of the divisions into which a theory of motivation 
naturally falls need not, however, concern us here. What 
in a complete treatment would have to be said on the 
nature of the Ultimate Good and on the principles of 
sociation thanks to which one public policy rather than 
another must be best, may here well be omitted, for it 
is not the ethical system of Utilitarianism that matters 
in an appraisal of theories of value, but the question 
whether men are indeed actuated as sensationalism told 
us, and whether values necessarily and invariably have 
an individual aim, putting the Ego always in the center 
and promoting social welfare precisely because of this 
fact. Naturalism, to be sure, did not take this view of 
motivation and morality, nor was it even accepted by all 
of the British Utilitarians, to say nothing of continental 
writers. But generally speaking the hedonistic theory 
of motivation, which pictured society as a mechanical 
aggregate of individuals, did ignore values that the in- 
stinct of self-interest, catering directly to the self, could 
not explain. All wants being values (though not all 



68 A CRITIQUE OF ECONOMICS 

values need be wants), they were traced back to pleasant 
experiences or to ideas of them, sensation being the ulti- 
mate fountain of all. 

Now, in the light of modern knowledge a line must 
first be drawn between what is innate and what is ac- 
quired after birth in human motives, for both manifestly 
play a role in history. Because of it man has a rec- 
ord of evolution or development radically different from 
that of other species. 

As for the instincts, opinion is no longer as unanimous 
as some twenty or thirty years earlier, particularly since 
geneticists have forced us to inquire into the nature of 
those carriers of heredity which make human nature 
fairly constant. If until recently instincts were enu- 
merated and treated as perfectly definite facts, nowadays 
the attitude of many is somewhat skeptical. What is 
instinctive and what is not, has once more become a 
vexing question. We read for instance in an article of 
very recent date: "An instinct, since it is as much a unit 
character as any other product of Mendelian inheritance, 
is inconceivable apart from the fact of its structure." ^^ 
The emotions which, thanks mainly to British psycholo- 
gists,®^ were taken as an index of the character of an 
instinct, have come in for their share of criticism, with 
the result that much work appears to be before us if we 
wish to satisfy new researches in biology. "The assump- 
tion,'* we are told, "of an original and unchanging char- 
acteristic central emotion, which is the essential attribute 

»« Bernard, L. L., Psych. Rev., 1921, p. 103, 109, 117. Also Tans- 
ley, A. G., "New Psychology," Part II; Paris, E., Am. J. of Soc, 
1921, pp. 184-96. 

"McDougall, W., "Introduction to Social Psychology"; Shand, 
A. F., "Foundations of Character," 1914; Marshall, H. R., "Pain, 
Pleasure, and Esthetics," 1894, pp. 83-86. 



VALUATION 69 

of the instinct, is itself without foundation in the data." ®^ 
However, in general instincts may still be said to pro- 
mote self-preservation, to be inborn and not acquired, to 
be quite plastic as a structure or process, subject to all 
kinds of postnatal experience, to lack a reasoning ele- 
ment, to be accompanied by feelings, and to center as a 
rule upon a near-by object. Instincts thus have no 
ideational basis, nor is a motive or an act of deliberate 
valuation a part of an instinctive reaction. ^^ So much 
we are tolerably sure of. Within this range of facts 
instincts have proven on the whole selfish, albeit their 
usefulness from a phylogenetic standpoint is not, of 
course, thereby questioned. 

Not all wants are, however, instinctive. Conative proc- 
esses are one type of will or wish or routine activity on 
the part of individuals, but not the whole of it. Rather, 
ideas also lead to volition, and in the opinion of many 
constitute a prime characteristic of most acts of will or 
states of longing. Thus, what needs to be stressed is 
the reality of the modification of instinctive predisposi- 
tions, as well as the possibility of men acting irrationally 
not only when driven by instinct, but likewise when trans- 
lating ideas into motor-reactions.^^ Stimuli, in other 
words, that animals do not encounter or cannot perceive 
in a psychological sense, may come from the outside. 

® Bernard, L. L., Psych. Rev., 1921, p. 105. Other writers: Kantor, 
J. R., Psych. Rev., 1921, pp. 138-9; Calkins, M. W., "First Book in 
Psychology," 4th edit., 185-86, where non-economic emotions are 
discussed; Link, H. C, Am. J. of Psychology, Jan. 1922. 

^ Innate and acquired volitions are contrasted by Meumann, E., in 
his "Intelligenz und Wille," 1908, pp. 202-8. The independence of 
instincts of pain-pleasure is emphasized by Drever, Jas., in his "In- 
stinct in Man," 1917. 

'" Importance of modified instincts for social science is shown by 
Hunter, W. S., in Psych. Rev., July, 1920. 



70 A CRITIQUE OF ECONOMICS 

Men have added a cultural, non-physical, environment to 
that provided by nature. They live in a socio-economic 
world even more than amidst conditions facing the sav- 
age; and because of this fact they have also burdened 
— or enriched themselves, according to view — with con- 
siderations unknown to animals. To the love of offspring, 
gregariousness, and to weak creative instincts have been 
added values that made organization of the most intricate 
sort possible only by limiting that freedom which not 
so very long ago was thought to be the principal bless- 
ing of a state of nature. Mental growth increasingly has 
dwarfed physical strength. Concepts have given purpose 
to perception and imagination, and in memory-associa- 
tions provided a means for adapting the potentialities 
of nature to non-biological needs, to wants ever mul- 
tiplying and continually digressing from the line along 
which they originally moved. Thus ideas rather than 
instincts are responsible for most of our economic ac- 
tivities. Until direction is given to the former, the 
latter are not truly social or economic. Emotions 
still color our experiences and leave the most lasting 
impressions, but cortex and association areas add 
their part to the result which we call motivated 
activity. 

"Desire," as one notable book puts it, "is a very com- 
plex emotional system which includes actually or poten- 
tially the six prospective emotions of hope, anxiety, dis- 
appointment, despondency, confidence, and despair.'* But 
"the prospective emotions of desire are only aroused by 
thoughts ; being first dependent on the thought of the 
end, and secondly on some modification of this thought 
which operates as the special stimulus of one or other 



VALUATION 71 

of these emotions." "^^ "As a rule the projection [pic- 
turing an impending act as already completed] comes 
first, is then felt as a motive, and then leads to action." '^ 
In a sense, then, assumptions (Annahmen) form the back- 
ground of many of our desires or acts of volition. ^^ We 
are under the sway of ideas not always pushed into the 
foreground of consciousness, but nevertheless partly de- 
terminative of the mode and direction of our efforts. Will 
consequently involves the "consciousness of an act to be 
performed, of the end or consequences of an act, and of 
an accepted purpose or intention." ^^ It is with a set of 
beliefs and concepts that we start out, no matter how 
original the form of our achievements. Generally speak- 
ing we may also agree that the object of our desire is 
not within our present reach, and that obstacles will, 
under suitable conditions, intensify our striving. Or in 
the words of one writer: "Conative factors attach only 
to imaged, ideated and conceived content. If an object 
is present to sense — it may be pleasing or displeasing, but 
cannot be desired or be repugnant." ^^ But whether this 
be so or not — and some have rejected this notion — there 
can be no doubt that wish and effort originate in ideation 
as well as in instincts. 

«Shand, A. F., "Foundations of Character," pp. 463-4; Kenagy, 
H. G., in Psych. Rev., 1917, p. 380. Desires traced to feelings: Jodl, 
F., "Lehrbuch der Psychologie," 1916, vol. II, p. 68. 

"Witasek, St., "Grundlinien der Psychologie," 1908, p. 360. 

''^Ibidem, p. 351; Urban, W. M., "Valuation," pp. 38-39; Meinong, 
A., "Ueber Annahmen," 1902; Shand, A. F,, "Foundations of Char- 
acter," p. 518. 

'* Breese, B. B., "Psychology," p. 402. 

'° Dunlap, K., "System of Psychology," p. 251 ; Ehrenfels, ch. v., 
"System der Werttheorie," vol. I. For obstruction view of will see 
Shand, "Foundations," pp. 461 and 519; Boodin, J. E., in Am. J. of 
Soc, 1915-16, p. 65; Ward, Jas., "Psychological Principles," 1920, 
p. 283; and Simmel, G., "Philosophie des Geldes," 2d edit., pp. 12-13. 



72 A CRITIQUE OF ECONOMICS 

From this follow two facts of significance for an ap- 
praisal of sensationalism, viz., first, that socially-derived 
values may supersede the purely individualistic, besides 
making judgment habitual, and secondly, that egoistic 
standards may be supplemented by altruistic ones which 
among lower types of animal life exist in only one form, 
viz. the parental instinct. Put differently, valuations 
may not be rational at all from an hedonistic viewpoint, 
and means may become ends to the effect that pain is 
freely courted as its own reward, or as a sacrifice whose 
joys, all things considered, exceed the unpleasantness ex- 
perienced. Just as valuations in general are standardized 
through the agencies of social control, so norms of action 
and desire may be imposed upon the individual that his 
original nature might not agree with. Habituation on 
the one hand, and custom or control on the other hand, 
give rise to wants that are absolutely at variance with 
the end proposed by an hedonistic calculus. Neither 
measurements of safety and maximum enjoyment, nor 
the dictates of self-preservation, enter into a large num- 
ber of our everyday desires. Not only is it true for 
psychological reasons that desire "has no definite or con- 
stant relation to the amount of pleasure that may result 
from its satisfaction," ^^ but more especially to the soci- 
ologist must it seem self-evident that "the degree of 
value [of anything] varies independently of hedonic in- 
tensity." '^ From one standpoint it may seem as if 
"every act of conation or will, as soon as it takes effect, 
furthers the state of happiness as compared to that frame 
of mind which would emerge if the respective action had 

"Ward, Jas., "Psychological Principles," p. 283. 
" Urban, p. 74. 



VALUATION 73 

not been taken," '^ but the question here is the object of 
our happiness, the way it affects our fellowmen, and the 
thoughts that urge us to do what produces pleasure in 
us. Viewed in this light the search for pleasure may 
mean nothing worse than a love of other men's approval, 
or the feeling of satisfaction that follows a deed of mercy. 
Valuations as wants then are altruistic even when ap- 
parently hedonistic. Value, more than ever, ceases to 
be a "single moment of enjoyment for its own sake," be- 
coming instead "a fact separated by the judging indi- 
vidual from the contents or cause of enjoyment, and 
something desirable which presupposes the mastery of 
obstacles, if not of distances in time or space." '^^ Or in 
the phrase of an American psychologist : Pain and pleas- 
ure "are ideal constructs which as objects, as passive 
states — are — the products of a process of abstraction 
exercised upon our 'condition' worths, including the pri- 
mary 'condition' worths, together with their complement- 
ary values ethical and esthetic, which arise on that 
level." ^^ Primeval values give way to secondary and 
tertiary values which, as want or enterprise, resemble in 
no wise the motives postulated by an unmitigated indi- 
vidualism.^^ 

''Ehrenfels, Ch., "System der Werttheorie," pp. 32, 41, 249; 
Roback, A. A., in Psych. Rev. publications, 1918, No. Ill, p. 37. 

"Simmel, G., "Philosophie des Geldes," pp. 12-13; Urban, "Foun- 
dations," p. 86; Barrett, E. B., "Motive-Force and Motivation 
Tracks," 1911, p. 179; Hayes, E. C, "Sociology as Ethics," 1931, ch. 
7; Taussig, F. W., "Inventors and Money-Makers," 1915, pp. 76-79; 
Tiburtius, J., in Conrad's Jahrb., 1914, pp. 721-89; and Sombart, W., 
in his "Quintessence of Capitalism," Book II, p. 171 (transl. by 
Epstein, G., 1915). 

«» Urban, "Valuation," p. 417. 

*^ On possible desire for pain-experiences see Meinong, A., "Ueber 
Annahmen," 1902, ch. 9, § 51 ; and Green, Th. H., "Prolegomena to 
Ethics," edit. 1906, Book III, ch. 1. 



74 A CRITIQUE OF ECONOMICS 

Some Conclusions. — But this being so, can we expect 
wants to be measurable any more than feelings or judg- 
ments or ideas? The question answers itself. It follows 
from all that psychologists have said on the subject of 
valuation that intensities of wish, or wants such as the 
economist is interested in, are not ascertainable by any 
known methods. We can be certain that wants differ in 
intensity, each man comparing his own with that of the 
next, and coming somehow to the conviction that his 
desires exceed, or fall below, those of the next man; but 
this is not measuring them as the science of economics or 
of psychology understands the term. Exchange values, 
therefore, must either be interpreted as something gen- 
erically distinct from subjective valuations of any kind, 
including our moral and esthetic aspirations, or we must 
arbitrarily make a given price the index for a definite 
degree of want or pleasure, resorting frankly to a petitio 
principii. On the whole, then, it seems best to divorce the 
psychology of valuation from price, though encouraging a 
qualitative analysis. For practical purposes the two 
are incomparable, so far as our present knowledge of 
them is concerned. Value, we may agree, "is not deter- 
mined by the particular exchange-ratio in which it hap- 
pens to be put, and is not changed eo ipso every time a 
new comparison is made." ^^ Valuations and wants are 
too elusive, too complex, and too individual, in spite of 
outer limits set by prevailing social norms, to be useful 
for a science of catallactics. Exchange itself, as has 
been truthfully said, "is a sociological phenomenon sui 
generis, a singular form and function of inter-individual 
life that can never be deduced logically from the quali- 
«^ Anderson, B. M., "Social Value," p. 24. 



VALUATION 75 

tative and quantitative facts called utility or scarcity." ^^ 
But because wants are so mobile and so far removed 
from mere physiological events, we are unable also to 
apply to them laws of response or of fatigue. To reg- 
ister increments of satiety in a physical sense may be 
possible, but to subject valuation processes to the same 
tests would be folly. "Since the value-feelings accom- 
panying successive increments of wealth are judgment- 
feelings, while in consumption the feelings are sensation- 
feelings, the presuppositions being different, the law of 
their modification may be different" ^^ also. It will re- 
main true always, as economists continually and to good 
effect point out, that we have limited capacities for en- 
joyment and grow tired of things either while consuming 
them, or as possessors of them in excess quantity. But 
to the questions, what is excess, where is the margin of 
want, and what the precise degree of want at that mar- 
gin, our psychologists offer no answer. Nor do they 
encourage us to make utility synonymous with desire or 
with its emotional accompaniments. 

So, what is to become of our law of diminishing utility? 
Plainly, however suggestive our bids in the open market 
may be of trading motives, they cannot be explained 
merely by the magic word "utility." All valuations are 
something categorically different from physiological 
facts, or from exchange-rates." Adventitious values ^^ 

^ Simmel, G., "Philosophie des Geldes," p. 59. See also Ehrenfels, 
"System der Werttheorie," 1897, vol. I, p. 93. 

^ Urban, "Valuation," pp. 164, 169: "The law of satiety does not 
apply to the feeling-power of value"; p. 152 (-5) : "The threshold 
of value [marginal] — has — a cognitive character which distinguishes 
it from the merely hedonic threshold"; see also pp. 172, 186-88. 
Kreibig, J. G., and Meinong, A., similarly. 

^'^Watkins, G. P., "Welfare as an Economic Quantity," 1914, chs. 
13-15, and 18. 



76 A CRITIQUE OF ECONOMICS 

lurk everywhere, and primary gratifications no longer 
hold the field. So a consideration of absolute values can- 
not rest on physiology. Nor can it be more than a pre- 
liminary in a price analysis, the main task being a quan- 
titative correlation, 



CHAPTER THREE 
PRICE 

Non-Psychological Premises of Economics. — Although 
a rejection of sensationalism as a theory of valuation 
must have serious consequences for systems which are 
bound up indissolubly with it, Utilitarian and Marginal 
economics might nevertheless be considered vindicated, 
provided nothing else were proven wrong than this re- 
duction of want and value to sensations or feelings. 
It is necessary therefore, if our critique of doctrinal 
economics is to be thoroughgoing, to test its treatment 
of prices independent of all psychology, or at any rate 
with reference to other points than those of a par- 
ticular psychology. What we must ask is : Can the tra- 
ditional reasoning anent price (respectively shares of in- 
come) hold itself, supposing sensationalism were quite 
ignored.'' Or are there errors that condemn it on other 
grounds.? Are the laws proclaimed, for instance, real 
laws ? And in what sense has the search for them yielded 
results at all comparable with what the canons of science 
in general demand.'* 

Now, in approaching the problem from this angle we 
are driven to the necessity, first of all, of defining certain 
terms frequently used in economics, and secondly to re- 
state some of the premises other than the psychological, 
without which catallactics could not have presumed to 
accomplish what apparently it did. 

77 



78 A CRITIQUE OF ECONOMICS 

As regards the word "law," then, we should at the 
outset emphasize that strictly speaking, it always means 
a statement of things or events regularly recurring to- 
gether in time or space, subject only to such conditions 
as may be brought logically in harmony with said law. 
That is to say, the law is an abstraction treating of 
qualities or quantities recognized as sequences or coex- 
istences. Our senses will present them as parts or cen- 
ters of a large complex of data, but after these latter 
have been allowed for, the remainder is true to the law in 
all cases. Or to put the matter differently again: A law 
correlates things or events, and we "determine" one fact 
or set of facts by referring to those others which in- 
variably are an accompaniment of it. If I speak there- 
fore of "determining" the price of an article, I mean 
that certain things precede in point of time, or go with, 
that price, these regular recurrences constituting a law 
of price. I may bring other prices in connection with the 
particular one examined, or I may look for facts that 
are not themselves prices, such as supply or states of 
mind — supposing I could ascertain them — or any num- 
ber of things discoverable by my method. In all in- 
stances, however, the determination of a price, whether 
expressive of a rigid law or not, will signify this linking 
of a series of facts with it. Nothing else can mean 
determining a price, and this it is very important to 
remember. 

On the other hand, the words "fixing" or "measuring" 
a price have a less distinctive place in economics, albeit 
occasionally responsible for serious mistakes. To "fix" 
a price can mean no more than to state it, and what a 
price is we shall see in a moment. Measuring a price, as 



PRICE 79 

against fixing it, must then mean that we compare quan- 
tities of different things that are exchanged for a con- 
stant amount of some other article serving as a stand- 
ard. In the comparison of these, presumably different, 
physical amounts of different kinds of things with some 
one specified commodity I bring about a measurement, 
precisely as I may measure the length of a table and a 
sofa by applying a physical standard such as a meter. 

This is the only possible way of measuring prices be- 
cause a price is itself the amount of one article given for 
another. ^ I may think of both articles as physical quan- 
tities — if they are not services rendered — or I may con- 
sider them as values in the absolute sense. That does 
not matter. But invariably a price is the quantity of 
one thing tangible or intangible exchanged for another, 
and since exchange in modern times is carried on chiefly 
by means of money, which also acts as a standard of 
value, we describe a price usually as the amount of money 
given for an article or a service. 

How much money is paid more or less regularly for a 
good, that is one of the chief questions with which 
economists have concerned themselves, and it is in watch- 
ing the analysis back of these attempts at the discovery 
of laws of price that our attention is called to their 
strongly hypothetical nature. For to begin with, eco- 
nomics is not really intent upon explaining any one price 
such as businessmen make their daily study. Not par- 
ticular actual prices, but rates of exchange relative to 
selected conditions are the subject of the professional 
student. Economists so far have always treated prices 

^A list of definitions of price since 1769 is given by Fetter, F. A.j 
in Am. Econ. Bev., vol. 2, pp. 783-813. 



80 A CRITIQUE OF ECONOMICS 

as points on demand and supply curves, the factors de- 
termining that point being itemized previously and given 
an imaginary quantitative relation. Premises, in other 
words, have always been essential to the orthodox state- 
ment of laws of price, and these must be carefully 
declared, if the conditional character of economics is to 
be fully understood. 

Apart from the theory of sensationalism, economics 
has worked with assumptions of private property, of free- 
dom of contract, of freedom of vocation and residence, 
and with several others more or less clearly implied and 
to be mentioned in a moment. 

Now, the substantial accuracy of the assumption of 
private property and freedom of contract and the other 
two items may be readily granted. Though restrictions 
by government have long been definitely made and indeed 
added to during the last few generations, a sufficient 
amount of individualism has remained to serve for the 
ends of the economic argument. With regard to com- 
petition, however, it must be stressed at once that it can 
hardly be mentioned as a premise distinct from the others. 
Competition, it will be seen at a second glance, is not 
something different from freedom of contract, hedonism, 
and the rights of vocation or residence, but a term rather 
by which we describe the aggregate effect or the psycho- 
logical aspects of such legal rights and human traits. 
A little thought for the way in which economists have 
always portrayed this competitive system will reassure 
us on this point, and incidentally also show its relation 
to contract and monopoly. 

As economic literature provesy^ competition chiefly 

* For an illuminating recent discussion of competition as a pre- 
requisite to economic arguments see, e.g., Amonn, A., "Objekt und 



PRICE 81 

meant a struggle among contestants for pleasure and 
gain. Hedonism itself declared men to be moved by con- 
siderations of advantage, the aim being to avoid pain 
and to seek pleasure. Enterprise pivoted on these two 
arch-dispositions innate in all humans. But men were by 
birth unequal. They had different endowments of 
strength, aptitude, temperament, and so on. They 
furthermore lived amidst different environments, receiv- 
ing unequal training, being helped or hindered by unequal 
socio-economic factors before they entered the arena for 
gain, or while battling within it. Thus men had dif- 
ferent chances in the game, and freedom of contract per- 
mitted these differences to make themselves felt — up to 
the point where other considerations might call a halt. 
Men were put on an unequal footing so that natural and 
acquired disparities might secure victory for some, and 
defeat for others. This is one of the meanings of com- 
petition and freedom of contract, and so a competitive 
regime is nothing distinct from the data examined. If 
men were ever so unequal, but restrained by law, their 
relative standing would be standardized for practical pur- 
poses. On the other hand, if contract were completely 
rid of regulation, the results need not be what now we 
associate with competition, provided congenital equality 
led to socio-economic equality. Or again, if competition 
meant simply a spirit of emulation that spurred men to 
action and maximum output, without any thought for 
proportionate reward, freedom of contract might be rec- 
oncilable with utmost control of bargaining for the ac- 
quisition and exchange of wealth. But precisely because 

Grundbegriffe der National-oekonomie," 1912. For a rejection of 
competition see, among others, Hobson, J. A., "Economics of Dis- 
tribution." 



82 A CRITIQUE OF ECONOMICS 

hedonism referred to acquisitive leanings, in full view of 
differences for work, competition had to mean a system 
in which differentials of nature and of personal endow- 
ment and opportunity are legalized, the equality of all 
consisting of their like rights under law to do the best 
they could, taking their fate stoically, and trying again 
if they failed the first time. Thus competition is a play 
of differentials consonant to legal and hedonistic prem- 
ises, but not anything separate from them. The joint 
operation of the premises is competition. 

It follows, then, that monopoly could not well mean a 
differential advantage only, although this interpretation 
has found vogue. In a sense all superiorities are, to be 
sure, a monopoly. At least they tend to favor the emer- 
gence of quasi-monopolies for a certain length of time 
and locality. But strictly speaking this is not what 
economists could think of, for that would have involved 
the repudiation of competition. Nothing of the latter 
would then have remained. Hence monopoly was not in- 
correctly defined, by some, as the ability to augment total 
net profits by reducing production or sales, or as the 
situation in which one buyer faces many sellers, and vice 
versa. Monopoly thus became exceptional, and competi- 
tion the rule. 

So far, so good. After Ricardianism had gained a 
hold, however, a further premise hove into view, and still 
another might have been added for the sake of logical 
consistency. Namely, in the first place, statics was con- 
ceived as a constancy of socio-economic conditions due to 
which abstractions along the lines already mentioned 
would become fruitful, yielding exact laws such as physi- 
cists could pride themselves upon. Statics was thought 



PRICE 83 

to signify (quoting from a representative authority in 
this respect) : "If there is no change in the mode of 
action, there is none of that grander progressive move- 
ment by which the structure of society is altered. If no 
labor and capital shifts its place from group to group 
in the industrial system, there is none of that type of 
movement which, in a special and higher sense, we here 
term dynamic. Till the ground forever with the same 
tools and get the same kinds of crop, work in the same 
mills with the same machines and materials — in short, 
change nothing in the mode of creating wealth — and you 
have a socially static industry. The producing organism 
then keeps its form intact." ^ Some abstraction like this 
was deemed to be a logical prerequisite to a clean-cut 
analysis of the pricing process, so that for economists 
statics and catallactics became virtually synonyms. 

Secondly, if money served as a medium of exchange and 
as a standard of value it was necessary to the Utili- 
tarian-Marginal argument that the price-level be as- 
sumed constant, and hence the amount of standard 
metal according to the quantity-theory of money. Such 
a premise was not, to be sure, specified among the others 
here discussed, but it might have been, since the dispersion 
of prices due to changes in the volume of a circulating 
medium or in its rate of turn-over was a familiar fact by 
the beginning of the nineteenth century. 

Definitions. — Turning now from the presuppositions in 
psychology and political law to the law of price itself, we 
must first be careful to understand the terms demand and 
supply, buyers and sellers. Their definition becomes the 

'Clark, J. B., "Distribution of Wealth," 1899, p. 59. See also 
ch. 3. 



84 A CRITIQUE OF ECONOMICS 

more important since economics, like geometry, developed 
many theorems from a few basic postulates. 

As to demand it was always meant to refer to a want 
accompanied by purchasing-power, and not simply to a 
state of mind such as a boy's who looks longingly through 
the show-window, but has nothing with which to reenforce 
his desire. Furthermore it was generally, though not 
perhaps by all,"* believed that demand signified a bid 
rather than an act of purchase. In a text quite recently 
from the press we find this thought stated in the words: 
"By the demand for any commodity the economist means 
in general the quantity of that commodity which buyers 
stand ready to take at some specific price"; it being 
added that "if we take care not to confuse demand with 
the amount which people want or need, we must be equally 
careful to distinguish it from the amount actually bought. 
Demand in the correct sense might be characterized as 
potential demand; the amount bought, as realized 
demand." ^ 

The question whether supply should mean total stock 
of goods or only as much as was offered for sale, say at 
a minimum price, was likewise settled before very long, 
and that in favor of the second construction. But an- 
other point of scarcely less import was ignored in the 
price analysis, namely the possibility that each party in 
an exchange might be designated as either supplier or 
demander, seller or buyer. Because money was the regu- 
lar medium of exchange, and sale for profit the aim of 

*See for instance Fetter, "Economic Principles," 1915, vol. 1, and 
Jevons, W. S., in his "Theory of Political Economy," p. 119, where 
demand means purchase? 

" Taylor, F. M., "Principles of Economics," 1921, pp. 253-54. See 
also Seager, H. R., "Principles of Economics," 1913, p. 73. 



PRICE 85 

the entrepreneur, it was easy to forget that after all the 
relation between dealers was a reciprocal one, both play- 
ing exactly the same part if barter for personal consump- 
tion of things bought was the rule. Barring the defini- 
tion of supply as a store of goods in the physical sense, 
supply had to mean supply on conditions, or in other 
words, a demand for a quid pro quo which constituted the 
price. The demander on the other hand supplied either 
a standard value in goods, or any good exchangeable for 
something else. In barter the true relation between the 
exchangers would appear as it could not in a pecuniary 
regime where the entrepreneur pursued aims in principle 
different from those of the buyer for consumption. By 
a purchase of goods others had to be sold; in selling 
goods, others were inevitably bought. This was the dual 
aspect of supply or demand, of buyer or seller that must 
not be lost sight of in an appraisal of the method by 
which orthodox economics arrived at its law of price, 
respectively of income. 

Demand and Price. — The failure of psychology in any 
form, and notably of sensationalism, to provide us with 
a law of price, whether we think of an ordinary business 
transaction or of an exchange of goods for the personal 
use of the exchangers, may then be explained as follows: 

In the first case, namely, we are confronted with the 
undoubted fact that buyers and sellers act from difi'erent 
motives and represent modes of valuation so different in 
kind that they are really incomparable. To attempt 
therefore a reduction of prices to sensations or to feel- 
ings or to any psychic condition, proposing a measure- 
ment of one by the other, is to invite criticism as well 
as to court bitter disappointments. The buyer who 



86 A CRITIQUE OF ECONOMICS 

resells what he bought has nothing in common with the 
consumer-buyer, but much with the seller who is in the 
business for gain. For both of these dealers are actuated 
by a desire for profits, and not at all by an interest in 
the use-value or utility of what they deal in. That the 
buyer for personal use of goods has preferences and mar- 
gins of wants is evident. But this does not affect the 
other two parties. No pain-pleasure calculus is applic- 
able to buyers for resale or to sellers. Financially they 
may be subject to motives that a pure theory of con- 
sumption ignores. The utility of sellers is not technical, 
like the consumer*s, but entirely one of earning-power. 
However paradoxical it may seem, the technical utility 
of goods used in production by the manufacturer who 
offers his wares for sale has nothing to do with the worth 
he puts upon his business or his individual goods as a 
basis for net profits. Nor can, incidentally speaking, 
the purchasing-power of consumers, which has long been 
recognized as playing a decisive role, apply in the least 
to the buyer for resale or to the seller. In an entre- 
preneur world, indeed, buyers and sellers stand for such 
different principles of valuation that a quantitative rela- 
tion between values as pleasure, or of any other sort, 
and the prices of goods is impossible. Marginism was 
bound to be in the wrong to the extent that its explana- 
tion of price rested on a psychological analysis, and this 
regardless of whether it used ancient or modern theories 
of valuation. 

But suppose we imagine a world in which people trade 
purely for personal advantages of gratification, without 
aims at business profits, and even without the use of 
money. Under such conditions, what would be the facts 



PRICE 87 

bearing on a law of price? How would consumption 
goods be priced, and what factors would have to be con- 
sidered for the formulation of a law of price, if it exists? 

At the start it deserves noting that two questions are 
involved which make different demands upon our time. 
For the first would be : Why are goods exchanged, and the 
second: At what rate are goods exchanged? These two 
questions are indeed quite distinct, and not to be con^ 
fused in a search for principles of pricing. 

The first assumes no more than a desire on the part 
of men to add to their pleasures by an exchange of 
goods. If there are two persons dealing, and each wants 
the other^s goods more than his own, different kinds of 
articles will be "swapped." Boys trade different kinds 
of knives, or a knife for a popgun in this manner. No 
psychic states need be measured by us in order to explain 
this exchange. All we admit is the hedonistic principle 
and soTne difference in want by each for the article held 
by the other. Orders of preference may become evident 
as the number of things exchanged is increased; but the 
exact degrees of valuation entering into the rate of ex- 
change may be of no moment. 

The matter is different, however, if instead of one pair 
of dealers we have two or more dealers on one side bid- 
ding for the goods of one dealer on the other side, or of 
several dealers on the other side. For now a measure- 
ment of relative wants must take place that is decisive 
for the price at which goods are traded. It is not the 
comparison of wants between buyer and seller that 
counts, but the comparison of wants among buyers on 
the one hand, and among sellers on the other. The rate 
at which goods will be exchanged depends on the amount 



88 A CRITIQUE OF ECONOMICS 

of a given good which each of the buyers or sellers will 
offer for the desired good of the opposite side. This 
relative bidding-strength of all the members on each side 
settles the price; and so the absolute inequality of want 
of any one buyer as against any one seller has, from the 
standpoint of the economist, only a secondary signifi- 
cance. For what is studied is price, not the advantage 
of exchange as such. It is to know how price is deter- 
mined that we search for facts not relevant to an ex- 
planation of commerce itself. 

But this being so, what follows for the psychological 
argument of Marginism, indeed, for any correlation of 
price with psychic data? 

If we assume all traders to possess equal stocks of 
goods we must take their preferences to be purely per- 
sonal. Offerings of high prices, i. e. of large amounts 
of goods, for one article will be offset by correspond- 
ingly lower bids, in terms of goods, for other articles 
bought. By assumption total stocks represent equal 
purchasing powers, so that bids reflect wants and tastes 
only. These differences of preference may be innate, or 
acquired after birth. They may connect with diverse 
factors not open to inspection, or at any rate not at all 
measurable by known standards. As we have seen, 
furthermore, such valuations are highly complex things, 
and not to be resolved into physiological data or sense 
pleasures. What is back of each man's degree and order 
of wants, and whether these may be constructed into a 
law of valuation, is a question distinct from that of pric- 
ing. It has already been intimated that laws of valua- 
tion in the psychological sense may not exist, so far as 
our present knowledge goes. But it is certain that wants 



PRICE 89 

alone figure in an analysis of rates of exchange among 
dealers with like quantities of goods. 

Since such a condition however does not actually ob- 
tain, since inequality is the rule, the rate of exchange as 
one of amounts of things or services offered for a unit 
of other things or services varies with the degree or range 
of such disparities. What is known as purchasing-power 
becomes a factor of primary significance in the process. 
Intrinsic want-feelings or idea-valuations can no longer 
determine prices, for price is the amount of one thing 
given for a fixed amount of a second. Or to state the 
situation more precisely: Like wants may now he meas- 
ured hy unlike standards, the wants being personal- 
psychic, and the standards definite quantities of wealth 
held by each party in the transaction (bearing again in 
mind that we have assumed barter and exchange for per- 
sonal use, not for gain by one or both sides). On the 
principle of diminishing utility it is then safe to predict 
that a man will offer the more of what he has for some- 
thing desired, the larger his total assets ; and vice versa. 
Not that prices must therefore be adjusted to the wealth 
of each individual buyer ; for experience teaches us other- 
wise. We shall pay for goods a price uniform for a 
given region or group of people irrespective of our dif- 
ferences in wealth. But none the less, these differences of 
stock owned by each dealer help to determine what is 
bought at what rate, the members on each side competing 
with one another, and the price resulting from this meas- 
urement of wants in terms of purchasing-power then re- 
maining the same for all, regardless of differences in 
wealth among the traders. Price, in other words, is a 
resultant of many bids, of different numbers of traders 



90 A CRITIQUE OF ECONOMICS 

for each bid, and of different amounts of goods covered 
by each bid. This is the smallest number of elements to 
which we can reduce price determiners on the demand 
side. What is back of these bids is a separate question. 
As shown awhile ago, it will depend especially upon 
one item, to wit the way in which items of wealth — on our 
present supposition, amounts of goods — are distributed 
among traders. Since purchasing-power has by long ex- 
perience been proven to be a chief factor in bidding, and 
since psychic states are not themselves measurable, Mar- 
ginists have from the beginning used bids or price 
as the proof of degrees of want. Or to quote from 
Jevons : "The price of a commodity is the only test we 
have of the utility of the commodity to the purchaser." ® 

But let us note a few further facts before closing with 
the demand aspects of price. 

In the first place, namely, we must repeat that pur- 
chasing-power is only one determinant, albeit an impor- 
tant one. It does not follow that because total stocks 
are a function of the relative usefulness or value of any 
one portion of it, therefore they are the only function. 
Rather, we must be prepared to consider other items in 
this valuation, as already indicated ; and these others need 
not he at all psychic. Climate or nationality or age or 
occupation or anything else may serve as a key to bid- 
ding just as well as differences in wealth. What is meant 
to be emphasized here is merely the necessity of knowing 
something about the distribution of wealth — in terms of 
money or not — in order to arrive at a law of price which 
has many determinants, one of which is the range over 
which purchasing-power is scattered for all parties in 

« Edition of 1879, p. 158. 



PRICE 91 

the exchange. What critics have called the status quo, 
relative to which the orthodox statement of pricing is 
true, is partly this distribution of wealth at a time. 

But in the second place, do we really mean all wealth 
in defining this purchasing-power, or only a part of it-f" 
To carry out our hypothesis of exchange without money, 
for personal use of the goods exchanged, we had to start 
with the stock in hand as representing purchasing- 
power. But in the existing regime of money and ex- 
change for profit by sellers, do aggregate stocks we own 
help to determine valuations and thus prices (on the de- 
mand side), or instead certain portions of it.? Now, while 
this question cannot be categorically answered, it seems 
reasonable to believe that income rather than total assets 
is of importance, and that such income means to buyers 
for consumption an annual flow of value or purchasing- 
power rather than income for any other time-unit. Our 
total belongings are not likely to influence us, first be- 
cause our feelings with regard to much that we are nomi- 
nal owners of are not very lively; secondly, because of 
our inability to make any kind of estimate of such stocks ; 
and third, because of the force of habit and our disposi- 
tion to look more to future income than to values already 
acquired. 

Finally, some diff^erence between a non-pecuniary 
scheme of valuation and the pecuniary must be granted 
since money has unique functions, thus inducing us to 
value it as we value nothing else. "The valuation of a 
sum of money as a whole," it has been observed by one 
writer — and others have expressed themselves similarly 
— "where the separate instrumental judgments are sup- 
pressed, where its indefinite applicability to condition and 



92 A CRITIQUE OF ECONOMICS 

personal worths is assumed, and where it is referred im- 
mediately to the personality, gives to the sum of money, 
as a unity, an intrinsic value which may greatly exceed 
its actual value.'* ^ Money represents a special case of 
value and of valuation because it is a universal denomi- 
nator, a magnitude divisible into smallest particles, ex- 
ceedingly attractive as a counting device, and withal a 
store of treasure whose enduring qualities compare fa- 
vorably with most of the commodities purchasable for it. 
Hence it must be acknowledged that our estimate of a 
fraction of a two thousand dollar annual income need not 
be exactly that of the same fraction of two thousand 
dollars paid to us annually in goods. But this of course 
does not affect the main point of the argument, viz., that 
differences in wealth or income figure prominently in the 
making of prices, while psychic facts as such do not. 
Demand therefore is something different from what either 
sensationalism or any other psychological theory of price 
laws would have us. believe. 

Supply and Price. — On the supply side the determin- 
ants of price ordinarily mentioned have been supply it- 
self, and cost or expenses. Not that these three really 
were treated as distinct factors, but that they were op- 
posed to demand; cost or expense acting through supply 
precisely as purchasing-power might have been, and by 
some was, described as operating through demand. What 
then shall we say of these determinants, or of others that 
may be detached from them, and yet have validity in a 
law of price.'' 

If supply is to mean what so frequently was said of 

* Urban, W. M., "Valuation," 1908, p. 340. For like statements 
see Simmel, G., "Die Philosophie des Geldes," 1907, pp. 272-94, and 
Elster, K., In Konrad's Jahrb.. 1921, p. 515. 



PRICE 93 

it, to wit, an offer of goods subject to a certain minimum 
price,^ then it cannot surely be called a "determinant" 
of price; for it would be merely a quantity of goods ex- 
changed at a price — which is a very different thing. And 
we may add a propos of this thought that the so-called 
equilibrium ^ of supply and demand on those conditions 
was no more than a truism to the effect that what is 
bought is sold at some price. That of course would be 
incontestable, but could it deserve the title of a law? 
Indeed, we might further declare that such a statement 
was nothing but a corollary from the well-known premises 
of hedonism and mobility of capital and labor through 
freedom of contract. Supply at a price would be de- 
mand as well as supply, and could not be considered as 
a new factor among those determining prices in general. 
Thus we are driven to the conclusion that supply, to 
fill a definite need, must mean physical stock of goods or 
offerings of services to a given amount. If supply means 
this, we may wish to find out whether it keeps a more or 
less fixed ratio to prices, for instance so that prices rise 
in inverse proportion to supply, or fall twice as fast as 
supply increases ; and so on. Such a correlation is per- 
fectly legitimate and has been attempted in a few cases 
both in England and elsewhere, but since supply cannot 
properly mean anything else than this volume of goods 
on hand (rather than market offerings at a price) it 

* Vide Taylor, F. M., "Principles of Economics," pp. 268-9. Jevons, 
in his "Theory of Political Economy," 1879, pp. 70, 77, stresses 
supply per time-unit. 

' Similarly, to say "the ideally just price is one which will secure 
a balance between production and consumption" is to beg a question, 
unless a just distribution of income be previously defined. See 
Carver, Th, N., in P. and P. of Am. Econ. Assoc, March, 1919, p. 
250. 



94 A CRITIQUE OF ECONOMICS 

follows that supply need not be that of any given mo- 
ment. A static view of the pricing process becomes un- 
necessary, not to say illogical, as soon as we reject the 
psychological approach and take men, merchants, con- 
sumers, and wares-for-sale as they really function every- 
where about us. 

But with this understanding physical supply may also 
be profitably connected with other facts which act di- 
rectly upon it, or may prove to move in some more or 
less constant ratio to prices. Thus prospects of gain 
do influence producers in fixing output and supply. Thus 
our valuations may lead to increased output even though 
rates of return diminish. The more we value something, 
the harder we work to get it ; the larger the amount of 
capital-goods and of labor-power dedicated to its pro- 
duction. Again, monopoly or non-reproducibility may 
affect supply ; or even more definitely cost or expenses, as 
has always been emphasized by economists. 

Cost. — Cost in this case cannot however mean labor- 
pain or disutility,^" since neither is measurable. We may 
point to them as elements in a qualitative analysis, but 
cannot use them to establish a price, which is a definite 
quantity of two or more goods exchanged. Cost, then, 
must be made objective. It must signify a physical 
volume of goods destroyed, as for instance seed-wheat by 
the farmer, or the coal burned in smelting iron-ore. Such 
a correlation is permissible, although we have decided 
long ago that no law of exchange-value is discoverable 
by that route. Neither does outgo of time or of muscu- 
lar effort seem to account for the fluctuations of price, 

^^ On the pros and cons of the disutiUty notion in Marginism see 
Schumpeter, J., "Wesen und Hauptinhalt der Theoretischen National- 
oekonomie," pp. 221-34. 



PRICE 95 

and furthermore, labor-costs and other costs are so 
varied and complex that a measurement of them seems 
out of the question. Manual labor is not at any time 
comparable with mental labor. Joint-costs cannot be 
imputed in exact amounts to the several products result- 
ing. We have fixed versus variable charges, reproduc- 
tion as against production costs, and minima offset by 
maximum costs — always in the non-pecuniary sense. How 
may such data be brought into exact relation with prices ? 
That it is for the future to find out. 

Expenses. — Similarly must expenses be regarded as 
facts difficult of measurement, although an attempt 
should be made if a law of price is to be established. As 
monetary outlays expenses can certainly not be called 
determinants, since such facts are themselves values or 
prices, belonging either to the past, or figuring as esti- 
mates by the producer or merchant who looks ahead in 
order to conduct his business. As past or prospective 
valuations these expenses can mean nothing in a search 
for laws of price unless we exclude net promts and seek 
to correlate statistically the remaining sum with final re- 
tail prices, or with prices resulting from all immediately 
preceding expenses, minus net profits. That all expenses 
mclusive of net profits must equal the sales price is a 
safe guess, except where absolute losses are incurred. But 
such cases would be rare. On the other hand, if expenses 
not including net profits were to show a fairly fixed quan- 
titative relation to prices, that would give us a law such 
as any statistical method may lead to. Only, we should 
have to remember that, as with costs, so here too the 
technical obstacles in the way would be often insurmount- 
able. For once more there would be joint versus single 



96 A CRITIQUE OF ECONOMICS 

expenses, fixed charges, maxima and minima or per- 
haps averages and in addition the differences between 
actual expenses of production and these plus incidentals 
which, in the present economic system, are at times far 
from negligible. What criterion is to guide us in such a 
perplexing situation? Would it not be more a matter of 
definition than of scientific method? 

To conclude therefore our survey of Utilitarian and 
Marginal pricing, the first stressing psychic facts and 
the second the role of costs or of expenses : We shall have 
to admit first of all that price is a resultant of far more 
facts or events than our traditional analysis has per- 
mitted us to understand. We have no right to picture all 
elements as working through supply and demand; but 
we must on the other hand be willing to consider a 
variety of facts physical and otherwise, if a law of price 
is to be discovered. Secondly, there is good reason for 
using psychic facts in a qualitative analysis which shows 
whi/ prices exist, and why they differ; but this is not to 
vindicate those who proclaim preferences and intensities 
of want to be the final key to prices. Third, a correla- 
tion of one group of prices with another is in order, and 
may net us as satisfactory a law as possibly any other 
method. This it remains for us to investigate, although 
non-price facts must always be accorded a prominent 
place in either a quantitative or qualitative analysis of 
prices. Fourth, with regard to special problems, such as 
the market value of production-goods of lasting qualities, 
or of labor fighting for a standard of living — with re- 
spect to these both our enumeration of determinants and 
their measurement relative to price must be much more 
comprehensive than a science of catallactics could have 



PRICE 97 

suspected. An abstract price analysis has the virtue of 
simplicity, but what if this is its only one? 

The Marginal Concept. — Having disposed, then, of the 
fundamentals in Utilitarian and Marginal pricing 
we may now proceed to a brief consideration of the 
margin which was designed to give the subjectivistic 
view of economic processes a most precise appearance, 
and in fact accounts for the name Marginism or Marginal 
economics. 

Utilitarianism had introduced two kinds of margins, 
namely one to determine (or measure?) rent, and the 
other to show what amount of expenses determined the 
prices of commodities. The Ricardian idea of rent, since 
it found the key to rent in productivity rather than in 
monopoly, had to take account of different soil fertilities 
either as such, or as returns in dollars and cents. No- 
rent land thus was differentiated from rent -bearing land 
which represented all yields more than equal to a sub- 
sistence fund for the tenant. How much rent might be 
paid, and normally was paid, to the landlord depended 
upon the difference between the return of the worst land 
in use and that of a superior piece of land. In this way 
land at the margin became most important for the cal- 
culation of "economic rent." Similarly the prices of 
goods corresponded, not to an arithmetical average of all 
expenses incurred by different producers, but to either 
maximum or minimum expenses ; to the former in a short- 
time view, and to the latter in the long run. This was the 
decision handed down by the classicists, and accordingly 
least efficiency turned out to be a decisive margin, since 
orthodox economics always took a static view of the 
production and pricing process. 



98 A CRITIQUE OF ECONOMICS 

Now, Marginists had to go a step further than their 
predecessors because they had committed themselves to a 
subjectivistic interpretation of value or income. Since 
they traced exchange-rates back to psychic states, to 
utilities or wants or pleasures or disutilities, the note- 
worthy fact for them was the difference in degree of 
pleasure or want in different people. There was need of 
recognizing first, various intensities of satisfaction, sec- 
ondly an order of choice which should make the unit of 
pleasure in using one class of goods nearly equal to that 
gained from the next preceding class, and third a variety 
of uses of which a given article might admit. Thus there 
arose three kinds of margins for the pricing of goods, 
although all three had of course a common origin and 
depended ultimately on one single law, viz., that of di- 
minishing utility or pleasure or want. (The three terms 
were used interchangeably.) For the distributive analy- 
sis other margins were invoked, of which more anon. But 
just now let us note that in the resort to this least want 
or utility men hoped to have explained price. Least 
gratifications or wants, it was said, determined what 
would be paid for an article (or a service!). Goods were 
bought so that the pleasure derived from the last unit of 
one good was nearly equaled by that derived from the 
first dose of the next good in order of preference. Man's 
hankering for maximum pleasure was responsible for this 
arangement. In the balancing of such magnitudes of 
value or pleasure all exchange had its origin. As for 
different uses of any one commodity, the least valuable 
would inevitably figure in its rating when combined with 
other things, or when used by itself for a greater satis- 



PRICE 99 

faction.^ ^ The least want was always the decisive ele- 
ment, regardless of differences of gratification experi- 
enced by different buyers. Hence also these differences 
could not mean different prices, for the hedonistic motive 
would protect the supra-marginal user or buyer. This 
applied to the demand side. On the supply side the re- 
tention of expenses as a determinant of price assigned to 
least efficiency the same role that Utilitarians had granted 
it. In a word, margins for both groups of economists 
served to explain prices, precluding the possibility of 
more than one price in an open market, and connecting 
price with a differential that was taken directly from the 
realm of facts. 

But what shall we say today of such margins as a de- 
terminant of price, as an avenue of approach to a law 
of price valid for all times? 

In the first place we need of course not dispute the 
existence of differences, or the merit of distinguishing 
between first and last sensations in an act of consump- 
tion. That we equalize our pleasures frequently, and 
usually to a degree, and that we gauge the extent of a 
loss not by the greatest pleasure the article gave us, but 
by the least sacrifice which will replace it — these points 
may readily be granted. We may object to having dis- 
utilities confused with utilities foregone, or to having 
theorists insist upon a law of one price when our ears 
and eyes tell us of several prices in our home markets on 
the same afternoon. But these are details. 

In the second place however we have already seen that 
Marginal psychology as a whole was wrong, and more 

"Due chiefly to Wieser, F., in his "Natural Value" (transl. of 
Malloch, Ch. A., 1893). See p. 98 et passim. 



100 A CRITIQUE OF ECONOMICS 

particularly that psychic entities remain incommensur- 
able. This is true beyond doubt and interferes seriously 
with the plea for margins. Further, and in the third 
place, the law of diminishing utility likewise has its 
limits, as stated in the previous chapter. The Margin- 
ists themselves have pointed them out and accordingly min- 
imized the worth of their standard. And this inapplicabil- 
ity of utility-margins becomes the more striking the more 
we consider our stock of goods as a variety of wants, or as 
a pecuniary income, for both of which value- judgments 
prevail that have nothing in common with sensations. 

Fourth — and perhaps most to the point — the hypothe- 
sis of a margin helps us in no wise to formulate a law of 
price, for the question still remains : Why did marginal 
wants or values represent such and such a magnitude? 
To be sure, if psychics were measurable we might let the 
measured limen of gratification stand as a last cause of 
price. But inasmuch as our feelings and judgments 
cannot be bo definitely ascertained, we must look else- 
where for an explanation. We must find out why want 
or market-bids, and not pleasure or utility, moved on a 
certain level or declined to a certain minimum decisive 
for price. Objective causes and correlates should be 
established if a law of price is to appear. As long as 
this is not done, the mere discovery of a least dose will 
boot us little. Though margins therefore did mean a re- 
finement of analysis, they provided no ultimate scientific 
explanation. They were a device for dialectics, a fiction 
convenient for debaters and mathematicians engrossed in 
"functions," but hardly a solid basis for generalizations. 

The margin, in fine, added nothing to subjectivism in 
general. 



CHAPTER FOUR 

DISTRIBUTION 

Preliminary Definitions. — If economists had treated in- 
comes consistently as prices, without bothering about 
forces other than the psychological in their attempts at 
explaining these incomes, a critical review of the price 
analysis would suffice for the distributive aspects also. 
It is however wellknown that few writers were content 
with a discussion of income laws entirely from the stand- 
point of demand and supply. What seemed to impress 
all of them was the necessity of bringing in non-psychic 
elements in order to find laws for shares comparable to 
those of commodity prices. Even Marginism, which 
labored most conscientiously to make of economics an 
exact science by relying upon the hedonistic calculus in 
all its arguments, could not avoid at certain moments to 
admit objective norms. Distribution therefore is not 
altogether a special case of pricing for goods. There 
are facts to be considered which a rejection of the sensa- 
tionalistic theory of valuation does not touch, and rela- 
tive to which one is prone to ask more than ever: Were 
laws of distribution really found, or was the qualitative 
analysis, in spite of special aids, again a half-way pro- 
cedure? Certainly, if one is to believe the literature on 
the subject, some very creditable results were obtained. 

Both Utilitarian and Marginal economists delimited the 

101 



102 A CRITIQUE OF ECONOMICS 

scope of Distribution as a special division along two main 
lines. The first was the exclusion of data not within the 
competitive exchange mechanism; and the second, the as- 
sumption of specified legal conditions thanks to which all 
producers could be assigned to one of four classes. The 
first of the two principles was the most important because 
of the definition of "economic" that it involved ; but the 
second was emphasized more regularly, for it led to prac- 
tical questions that critics were not slow to take advan- 
tage of when the need arose. It might not strike people 
as anything remarkable that economics should be a science 
of catallactics, but it was bound to arouse interest that in 
reality there could be only four claimants to the wealth 
produced by a nation. To define economic income was to 
state merely the amount to be divided, and what it did 
not embrace. But the legal premises, which were familiar 
to all, designated the sharers in the product, emphasizing 
their rank and social prestige in some measure; and that 
might well become a popular issue. 

Let us note at the outset, then, that economists always 
distinguished between a dividend, its sharers, and the 
share-amounts. The dividend from a common sense stand- 
point would probably be the total income of a nation in 
goods and services, regardless of whether all of it was 
off^ered for sale and thus exchanged at a price, or not. 
But for a science of catallactics that of course could not 
be the definition. By "dividend" for purposes of finding 
income-determinants was meant exclusively such wealth as 
entered the open market. Two sources of income there- 
fore were ignored by orthodox analysis, viz., first non- 
competitive payments in kind resulting on the one hand 
from certain legal relations or on the other from produc- 



DISTRIBUTION 103 

tive effort such as the work of married women, children, 
and other people productive, say, after business hours ; 
and secondly incomes not earned by personal effort, or 
at least not directly connected with it, but none the less 
accruing to people on occasions. Thus inheritances, 
gifts, finds, endowments and other instances of charity, 
life-insurance, bonuses on various grounds, and the 
results of gambling, all these ways and forms of ac- 
quisition remained necessarily outside of the distributive 
scheme of economists.^ Whatever portion of the grand 
total of property-transfers was not due to production- 
for-exchange,^ — and it is still considerable, possibly is 
on the increase — escaped examination, it being not adapt- 
able to a hedonistic principle of a definite quid pro quo. 
An unworked field of such extension might, to be sure, be 
considered a regrettable defect in any theory of distribu- 
tion, but the approach to income through price left no 
alternative. 

Similarly the recognition of only four sharers might 
have been, and at times has been, criticized as a barren, 
if logical, abstraction of men too much bent upon weaving 
a system. It has been pointed out how artificial this four- 
fold classification of earners is, and how much more prac- 
tical the periodic survey made, e. g., by the census-taker 
who finds out about personal incomes or family budgets, or 
about the financial standing of specified occupational 
groups. The official sharers of the science of economics 

* For a list of income sources other than services within the ex- 
change system see, e.g., Ely, R. T., "Property and Contract," vol. 
I, pp. 51-5. A well-known threefold classification of distributive 
processes is that of Clark, J. B., "Distribution of Wealth," ch. 2. 

^Schumpeter, J., "Wesen und Hauptinhalt," p. 321; also an article 
in Arch. f. Sozialw. und Pol, 1916-17, pp. 1-89. See also Wagner, 
A., "Theoretische Sozialoekonomik," 1907, Part I. 



104 A CRITIQUE OF ECONOMICS 

represent a proprietary regime in which owners were con- 
trasted with the proletariat. Those who had land, or 
capital other than land, made up two classes. The cap- 
tains of industry who might as such have neither capital 
nor land, but hired the use of them, constituted the third 
party, while the laborers they employed under contract 
represented a fourth contingent. Thus there were two 
sharers with property, one with acquired rights of man- 
agement of land, capital, and labor, and one that did the 
work set before him by the enterpriser. Landlord, capi- 
talist, enterpriser, and laborer made up the family of 
sharers in the social dividend. The law gave two of them 
a right to income from property, and the other two a 
right to income by personal effort. The manager of the 
other three sharers had no guaranteed income. He was 
in this respect the exception, and therefore proved from 
the beginning an embarrassing figure in the distributive 
process. However, it should also be remembered that a 
sharer was not necessarily a living individual, a real 
person; nor always the participant in only one of the 
four shares. For in the first place legal persons like cor- 
porations would secure a large portion of the grand total, 
and in the second place any one sharer might in his, or its 
own legal, person combine two, three, or all of the sharers. 
A farmer as entrepreneur (enterpriser) might hold bonds 
and get interest, work off and on for others, getting wages, 
and lease out part of his part, thus collecting rents. A 
sharer was therefore a theoretical entity. Many physical 
persons would make up one "sharer," and one person 
might represent four "sharers" as economists used the 
term. 

Shares, as distinguished from sharers, were the amounts 



DISTRIBUTION 105 

going to labor, capital, land, and enterprise. These four 
sharers together would get the whole dividend as for- 
mally defined ; and there could be nothing left over. But 
if we ask what the share meant, what the unit for income- 
analysis, the answer would not be : A portion of the total 
within the exchange-mechanism, but a fraction of any pro- 
duction-unit suiting definitions of value and production. 
How much of the national dividend each sharer procured 
could not be ascertained by the premises and mode of rea- 
soning employed by economists, hence was of no immediate 
concern to them. It would of course follow that if all 
the shares for each particular transaction were added up, 
then the share of each of the four claimants in the whole 
national income would be measured. But this was only of 
incidental interest. What engaged the attention of stu- 
dents was the manner, the principle, by which any one 
product in the precise scientific sense was divided, and 
this led at once to a consideration of hedonistic premises. 
Since men sought maximum gain at minimum cost, since 
value was something (tangible or intangible) scarce, 
wanted, and legally transferable, and since production 
consequently meant the creation of values rather than 
that of things, the proof of production was an addition 
of value. The unit for distributive analysis therefore 
was either that value created before the very -first sale of 
a good or service took place, or that increment of value 
occurred between any two sales. There were form and 
place and time utilities, and there was even a creation of 
value through effectuating a legal transfer of property 
rights, as in the case of a real estate broker. Thus ac- 
quisitive and creative norms, for one thing, might easily 
be confused, since according to orthodoxy the proof of 



106 A CRITIQUE OF ECONOMICS 

"production" was this addition of values, whether due to 
personal effort or not; while for another thing any one 
productive act might involve all four shares of profit, rent, 
interest, and wages. In the sale of a fountain-pen, e. g., 
the store-keeper would claim a profit ; the clerk employed 
would get a wage ; the owner of the building in which the 
store was located would get rent ; and if somebody held 
a mortgage on the merchandise there would be a deduction 
for interest. This followed from the entrepreneur view, 
and hence a variety of conditions helped in each sale, in 
each productive act, to determine shares. Nay, on any 
but a psychological analysis the determinants for different 
productive acts would vary so much that a law of income 
could hardly be established. The objective approach to 
income was, in other words, incompatible with the ideal of 
an exact distributive law, or set of laws. 

How then was the search for laws conducted? 

The Ricardian Scheme. — As an excellent example of 
Utilitarian theory may be taken the Ricardian which, 
with some alterations that do not matter for present 
purposes, has survived to this day. Ricardo, we know, 
relied upon laws both of physical and of human nature, 
though the distinction was not offered in so many words. 
He borrowed from Malthus the idea of a subsistence fund, 
and he went to other contemporaries to formulate the law 
of rent that passes under his name. There being but 
three shares, the problem was neatly solved. For labor 
would get no more than was essential to a bare living and 
to the maintenance of a family. The landlord obtained 
the whole yield of land better than marginal or no-rent 
land. The pressure for the product (say wheat) being 
the cause of the cultivation of successively inferior soils, 



DISTRIBUTION 107 

the hedonistic proclivity of man and of the owner of 
land in particular precluded the chance of the produce 
being sold directly proportionate to expenses or to non- 
monetary costs. What was left was then profit, which 
included interest. 

Variants of this scheme were to be sure submitted in 
the course of time, and Americans especially are ac- 
quainted with F. Walker's treatment of wages as a residual 
share. It was argued that labor got its own product minus 
the shares of land, capital, and enterprise. Rent was 
again the supra-marginal product, interest a reward for 
abstinence, and profit the difference between maximum and 
less than maximum expenses. The lower an enterpriser's 
costs (expenses) of production relative to the expenses 
of the less efficient rival, the greater his profit. It was 
a rent like the landlord's, albeit more of a contingent in- 
come because capital was not a monopoly like land taken 
as a whole. Labor thus claimed all it had produced after 
deduction of the other quota. 

Now, an important difference will be seen to exist be- 
tween the original and the later objective schemes of dis- 
tribution. For according to Ricardo physical output was 
a true differential, states of mind being ignored. The 
masses received enough to live and to perpetuate their 
kind. The landlord had to pay the maker of capital- 
goods a price equal to maximum costs of production. This 
he reckoned as part of his costs of producing wheat when 
computing his rent. Even land next to no-rent land used 
some capital-goods. This land therefore represented the 
marginal strip, above which existed lands yielding more 
wheat, that is to say a surplus converted into rent. The 
owner of the soil, then, did no worse than the enterpriser 



108 A CRITIQUE OF ECONOMICS 

in the city. They both shared in a differential advan- 
tage of capital, immobile or mobile. It was the laborer 
whose share was at an absolute physical minimum, except 
when his employers in farm and factory, for reasons not 
here important, allowed him a mite above subsistence. But 
it was always physical goods that could be pointed to as 
the shares. A pecuniary or psychic measurement was not 
logically necessary, and besides Ricardo held that in the 
long run profits would approach wages, so that the sacks 
of wheat above those of marginal harvest formed the only 
residuum. Eventually "almost the whole produce of the 
country, after paying the laborers, will be the property 
of the owners of the land and the receivers of tithes and 
taxes." Thus was a scientific determination of shares 
made possible by the Ricardian analysis. 

As soon as abstinence, however, was introduced as a 
cause for a fourth share, to wit interest, and as soon as 
costs were defined strictly as monetary outlays, the Utili- 
tarian scheme lost its logical coherence. For a psychic 
entity was now measured by a price, namely an interest- 
rate, and in the second place expenses involved a begging 
of the question. The share of capital could not be said to 
be "determined" by abstinence since it was used as proof 
of a pain of non-consumption, the pain rising as the in- 
terest-rate did, and vice versa. Nor could expenses render 
the service that things did, since they were themselves 
values which had to be further explained through some- 
thing else than value, if a real correlation was to be estab- 
lished between them and the price of services. Shares 
consequently ceased to follow laws in the scientific sense of 
the term. If a law of shares was still to be found inquiry 
had to extend to physical facts, not to values. Some 



DISTRIBUTION 109 

such facts were indeed adduced. Risk, for instance, came 
to figure in the determination of wages, or irksomeness of 
occupation, or again a standard of living ; that is a state 
of mind or custom whose own explanation was not at- 
tempted because it lay outside of the price system. Not 
that there could be any objection to the discussion of 
these non-hedonistic elements. On the contrary, it has 
more than once been intimated that a formulation of price 
laws necessitates such studies. But we must also note 
that in so enlisting the aid of non-psychic and non-pe- 
cuniary factors. Utilitarianism confessed the fallacy of a 
purely psychic causation. Marginists should have been 
warned by this experience of their predecessors ; but of 
course they were not. They went ahead serenely, hoping 
to achieve by a strictly psychic analysis what Utilitarian- 
ism had at first tried to do by a correlation of values with 
things such as labor-amounts, and later on had sought to 
accomplish by taking expenses objectively. 

On Wages and Profits. — Deferring the consideration of 
margins for a while, and taking up first the shares of 
personal effort, i. e., wages and profits, what was the 
procedure of the subjectivists? 

The analysis which suflSced for consumption goods, par- 
ticularly individual utilities, might of course have been 
applied also to labor-services, and in so far as all incomes 
constituted prices nothing else should really have been at- 
tempted. But a number of elements peculiar to labor- 
prices were soon recognized and taken account of. To 
begin with, for instance, a standard of living was eventu- 
ally admitted to interfere with a strict competitive 
interpretation of wages. Labor was not a commodity 
merely, or perhaps not at all — as the unionists would have 



110 A CRITIQUE OF ECONOMICS 

it. A minimum of allowances, irrespective of what indi- 
vidual bidders and a merciless enterpreneur regime would 
lead to, came to be accepted as a modifying factor. In 
the second place, economists at an early date had reckoned 
with objective data, even when Utilitarian standards did 
not call for them. While some harped on time or outgo 
of energy as possible determinants, others referred to dif- 
ferent degrees of risk and disagreeableness, or to expenses 
of training skilled labor, or to the number of laborers 
available at a given moment for a particular class of 
production. All these and other correlates figured in 
treatises and to this extent betokened a departure from 
either an iron-law of wages or a purely psychological 
standpoint. 

But an important circumstance, as soon as subjective 
norms were invoked, was the large amount of labor em- 
ployed, not only to render personal services for the satis- 
faction of wants, but also as a means to another end, 
whether this latter took material form or remained itself 
a service. For Marginists, that is to say, the services of a 
butler or physician might be said to follow the law pertain- 
ing to consumption goods ; but what a brakeman, e. g., or 
a mechanic produced who helped turn out furniture or 
tools for building operations could not so be related to 
want and purchasing power. Hence the resort, almost 
from the start, to a productivity theory ; and hence the 
desire to compare or connect causally definite amounts of 
output and wages. 

What however was productivity to mean in that case.'* 
Would it be physical things or useful services as such, or 
valuable items, or in short values.'' The issue was plainly 
a vital one a,nd could not be dodged. Even though physi- 



DISTRIBUTION 111 

cal results^ were meant, how could these be measured? 
Since most services were delivered in joint efforts yielding 
a single product, did not a problem in imputation arise 
that would defy the ingenuity of economists ? This surely 
was understood by many and forthwith felt to be an 
insuperable obstacle. But on the other hand, if produc- 
tivity was construed to be value-output, as it logically had 
to be, was not then the question raised what determined 
this quantity of value? When and why was a service, say 
the brakeman's or the mechanic's, worth so much, and in 
case of differentials among laborers with one employer or 
with many, or among such as were self-employing, which 
productivity was decisive? 

As will be shown in a moment, when margins come up 
for consideration, this last question of differentials was 
carefully studied, and besides, there were the familiar 
norms of maximum and minimum expenses. But just now 
it is the dependence of productivity upon a broader price 
law that counts, and on this point Marginists had to 
acknowledge either ignorance, or a begging of the question. 
Wage-laws consequently could not be affirmed to have been 
found, even though they might exist. 

And similarly with the question of profits, which so 
customarily were regarded as a residual. 

An objection to this argument was, of course, the fact 

that net profits could not theoretically exist in static 

economics ; for hedonism and the mobility of labor and 

capital under competitive conditions tended to level all 

shares, leaving instead of profits simply wages-of-manage- 

ment. This was the usual reply of those who inquired 

' On use of mental measurements for finding eflBciency and fixing 
wages see Woodbery, R. M., in Quarterly J. of Ec, 1916-17, pp. 
690-704. 



112 A CRITIQUE OF ECONOMICS 

with frankly critical intent into the how and what of 
profits. But in the first place, such wages-of -management 
would still offer the same difficulties of analysis as 
labor-prices, and in the second place there remained, in 
the real world, none the less a surplus above such wages- 
of-management. Thus the objection to Marginism was 
first that it could not explain a very large part of the in- 
come divided within catallactics, and secondly that final 
net profits could never be coupled with a sensationalistic 
or with any other psychological doctrine of valuation. 
Correlations of a statistical sort might be made, but that 
was unorthodox; and if against this it was urged that 
profits were aleatory, then again no law of profits appar- 
ently obtained. In either case the phenomenon of profits 
proved a profound, inscrutable mystery. And so pos- 
sibly it is. 

Rent and Interest. — But what of rent and interest as 
prices for services exchanged in an open market.'' Let 
us see. 

Rent in many cases was a price for the use of land for 
its own sake, without any intermediate link of concrete 
goods won from the soil. As site for an athletic field or 
a private residence land might therefore yield revenues 
conformable to the general laws of price, supposing they 
had been discovered. But once more, not only was in that 
case the old psychological analysis inadequate for finding 
a law, but also most sei-vices of land satisfied wants only 
in a roundabout way, most often by yielding produce as 
food or raw-materials for production. Thus all the short- 
comings of the productivity-theory applied to rent as well 
as to other shares. Physical output would never do, since 
supply in the physical sense had not been proven to be a 



DISTRIBUTION 113 

fixed function of prices. Value productivity referred back 
to values of the derived products, and thus to the funda- 
mental problem in pricing which psychology could not 
solve. And in addition joint-values offered the unanswer- 
able question of an allocation of shares in the final pro- 
duct. How could rent be considered explained merely 
because it was defined as a supra-marginal value? What 
did this boot if no law for the amount of surplus was 
found, if no events could be shown to accompany more or 
less regularly a stated sum of rental values ? This side of 
the situation was in itself puzzling enough, but joint 
productivity was a further challenge to the economist. 
Nearly all land-services represented joined values. Costs 
as improvements of the soil might be absent, but labor 
was nearly always an ingredient in the product. How 
allot the several parts of the product so as to isolate rent? 

Now, if such were harassing questions anent rent, the 
task of Marginists in expounding the principles of interest 
was even more exacting. In the course of time a great 
deal of labor was spent upon the problem, but really in 
vain because of a subjectivistic analysis. Besides, there 
was much confusion as to the term "capital," so that 
interest-rates seemed to obey, not one law, but several. 

Interest was the price paid for the use of capital ; this 
all agreed to. But what was capital? The word had 
several uses which did not all have the same bearing on 
loan-prices. From one standpoint capital was a produc- 
tion-good used to produce consumables, and this tech- 
nological relation would exist whether private property 
were abolished or not, whether interest had a price or not. 
The old question that Karl Marx had raised might have 
been settled on this principle. We might contend that a 



114 A CRITIQUE OF ECONOMICS 

nation is interested only in efficiency, and that capital 
therefore need mean nothing else than a means of indirec- 
tion in productive fields, a link in a roundabout process 
of production by which cost was greatly lowered and 
the wellbeing of the majority furthered. 

By an individualistic interpretation, however, the thing- 
aspect would be subordinated to a value-aspect. Capital 
would become a basis of profits or a right to income, or a 
measure of expected differential incomes, and for this 
reason bear testimony to the acquisitive trait in human 
nature rather than to the creative.^ If for the temporary 
use of my wealth I could charge the borrower in fractions 
of the physical amount of wealth, or in percentages of its 
money-value, relating my charge furthermore to time, this 
rate of interest might become a standard for measuring 
other kinds of income. Any kind of wealth might be capi- 
tal, regardless of its use. The sum of values loaned out 
might be money instead of tangible productives or con- 
sumption-goods. And so, to be sure, it usually was. The 
entrepreneur system thought of money when it mentioned 
capital, not of technical production goods or of goods for 
personal gratification. Capital was a fund of values ex- 
pressed in units of the standard currency of the country. 
Whether the borrower bought consumption goods with his 
loan, or yam or printing presses, did not matter to the 
lender. He simply advanced capital, and received it back 
at the end of a year with an added amount representing 
the price for the loan. He received the "principal" plus 
five per cent of it for the use he had allowed somebody else 
to make of the "capital.'* Capital thus was a value-fund 

* Several definitions of capital from standpoint of businessmen 
are given by Woolman, L., in Am. Ec. Rev., 1921, p. 39. 



DISTRIBUTION 115 

measured in terms of money; nothing else. A lender's 
capital might be turned into consumption goods by the 
borrower ; or this latter might purchase technical produc- 
tives (production-goods) with it. The word "capital" 
would still be used for both groups of value, but that was 
unfortunate, and a natural source of misunderstandings. 

There was however a third side to the question. For if 
money as a medium of exchange became capital when 
loaned out, bearing an interest the while, might not 
production-goods, since they were a lasting source of 
profits, acquire a value relative to the interest-bearing 
power of money, i. e., proportionate to the excess of net 
profits above the interest-rate? Could not a technical 
agent be credited with differential profits and thus assume 
a value above its original purchase-price, irrespective of 
whether it had cost anything or not ? Couldn't intangible 
assets emerge that would reflect the prevailing interest- 
rate for, say, a hundred dollars? 

The answer of course is that all this was possible and 
was done continually. The business world took the inter- 
est-bearing power of money for granted, and rated its 
technological means of production accordingly ; that is, 
if they were not destroyed in one single act of production ! 
Yarn would be capital both in the sense of being a techno- 
logical means to an end, and as a value-fund which was 
borrowed at a price, or might be loaned out at a price. 
But being used up in the weaving it could not be rated 
otherwise. The power-loom, on the other hand, might be 
given credit for profits made by the enterpriser with the 
aid of other capital and of labor and land, and if the net 
profits rose much above the current interest-rate, the value 
of the loom was figured higher in proportion. What is 



116 A CRITIQUE OF ECONOMICS 

known as "capitalization'* took place ; and here we have a 
third meaning of the word capital. Differential incomes 
of business were measured by a standard that was the 
prevailing interest-rate for all loans, excepting money- 
rates. 

Now, the economist in studying the price for the use of 
value-funds, or ordinarily in modern society for the use of 
money in one form or another, was not concerned with any 
but the second meaning of "capital." He did not deal 
with capital as technological goods, nor with such assets 
as capitalized profits. It was the supply of loan-funds 
that interested him if he was to account for that share 
known as interest. It was a question of finding out how 
this supply came into existence, and what law of price 
might be discovered regarding it. 

This being so, one fact stands out prominently at the 
start, and that is that costs in the ordinary sense could 
not explain capital. None of the shares could be related 
closely to costs, as we have already seen ; for labor and 
enterprise were not chattels, but the rulers of chattel, — 
to say nothing of the unique role of the enterpriser as 
captain of the productive process ; while land had no 
costs in so far as it produced without aid of either labor 
or capital. So what was to be the cost of producing 
capital, or the principle that regulated its supply .'' 

As remarked before, resort was early had to a psycholo- 
gical factor, namely to the pain of refraining from con- 
sumption. It was held that men suffered by not using 
immediately what there was in their hands, and that this 
sacrifice called for special inducements such as an interest 
on a loan. The Marginists did not add much to this 
notion except that they went somewhat further into the 



DISTRIBUTION 117 

psychological aspects of abstention, showing how our 
attention is riveted upon the present. Senior's theory thus 
became a theory of "impatience" or an agio-theory, as 
an Austrian dubbed it. Capital was at first identified with 
stocks of tangible wealth, including goods for consump- 
tion when used for pecuniary gain. Because of this con- 
ception of capital, and because such wealth in earlier days 
was no doubt literally "saved" as a reserve contrary to 
people's inclination to enjoy their goods-income at once, 
the doctrine gained currency that the loan-fund varied 
with the degree of thrift of consumers or of the enter- 
priser — notably at first the landlord — who might hire 
either field-workers or butlers at his option. 

It became evident however, as improved methods acceler- 
ated production and freed men from the danger of a 
deficit, that saving alone could not explain the whole of 
capital-goods, nor much less the loan-fund with which 
Distribution had to reckon. Impatience-theories could not 
hold themselves, first because wealth and loan-funds grew 
out of all proportion to the pain of foregoing enjoyments, 
which originally was (pain, genuine) and secondly because 
this pain anyhow was no more measurable than any other 
psychic state. For one thing, then, the available stock of 
wealth or of loan-funds would have to be the index of 
impatience, thus reversing the causal order, and for 
another thing the discrepancy between wealth as a 
means of acquiring profits or interest, and the loan- 
fund itself, gainsaid the assertions of the orthodox 
Marginists. 

For this reason, doubtless, other determinants of the 
supply of capital were considered. It was pointed out that 
government regulations affected supply because of a fix- 



118 A CRITIQUE OF ECONOMICS 

able ratio of the loan-fund to cash reserves, especially for 
money-rates. It was easy to show that banks manufac- 
tured credits, that is rights to the use of values and 
wealth, regardless of stocks of production goods and even 
of cash-deposits by their clientele. Costs of operating a 
bank woiild, to be sure, influence the price of its services, 
including that for loans ; but business conditions, general 
principles of investment, trade abroad no less than at 
home, currency changes and more particularly gold move- 
ments, which varied with facts not definitely measurable, 
these and other elements would count much more. There is 
no need here of going further ; for an explanation of 
interest-rates lies beyond the scope of our inquiry. What 
is important is the failure of the hedonistic concept of 
impatience as a key to the supply of capital. Indeed, to 
mix risks and banking-costs (expenses) with time-prefer- 
ence was unfortunate in any case, because of the incom- 
parable kinds of psychics involved. And then, of course, 
one might add incidentally that the chief suppliers of 
capital pretended to no pain of abstinence. Business- 
corporations spoke of surplus and investment, but not of 
a longing for consumption; and banks as main fountains 
of loan-capital would have stressed nothing more than 
their natural desire to "make" as much as possible. But 
this aim to earn was not comparable to the time-preference 
of the average saver. Nor was there any doubt that the 
banks set the pace, actuated by their own motives, after 
which industrial or trading corporations offered funds for 
lending according as they thought the prospects for 
profits through enlargement of their plants better than 
existing interest-rates, or not. And as for the multitudes 
who provided the smaller portion of the loan-fund mainly 



DISTRIBUTION 119 

through bank-deposits, they also followed the quotations 
of the professional lender. Roughly, this came to be the 
rule toward the end of the last century, and due to this 
alone the psychological approach proved misleading. As 
an explanation of supply impatience was but a makeshift, 
a mere reminder of the indisputable fact that present 
goods are by many preferred to future values. But it 
could not be a decisive factor. 

What could be said, then of the demand aspects? 

In the case of a man who borrowed directly for con- 
sumption the Marginist would of course plead again for 
his agio-theory. He would show why the borrower needed 
the value-fund that bought for him consumption goods, 
and would derive from it the price. Yet it cannot be 
repeated too often that, since impatience was itself im- 
measurable, the price would once more act as a barometer 
for measuring the want-pressure, just as the price of any 
other good was understood by Marginists to reflect 
psychics. And so there was nothing but reasoning in a 
circle. The only possible use an impatience-theory could 
have was to show why interest was paid at all. But was 
this any less obvious, any less a platitude, than to say that 
interest was due to the scarcity of the loan-fund? Was 
it not a fact to start with, rather than to wind up with, 
that prices presupposed scarcity relative to want, the 
two being inseparable? Was not time-preference, in the 
case of a borrower who wished to buy consumption goods 
for his personal use when he had no money of his own, as 
natural as the craving of goods by a man with purchasing 
power? Surely, the bare mention of impatience could not 
provide the materials for a law. It would have been 
necessary to state the more or less constant factors ac- 



120 A CRITIQUE OF ECONOMICS 

companying impatience, the laws of a degree of im- 
patience. 

But, since borrowing for consumption was rare anyhow, 
Marginism did not dwell too long on it except where it 
sought to explain supply of capital. On the demand side 
refuge was taken, as in the case of land and labor, to 
productivity. It was felt that a purely subjectivistic 
analysis did not suffice. And so men in both camps, 
whether they believed in time-preference or not, followed 
the early hint of Austrian thinkers that the superior 
productiveness of capitalistic enterprise left a fund out of 
which the lender could be paid, and which the producer 
was perfectly willing to share with him. Since capital was 
a means to an end, and since the borrower expected to 
recoup himself by his sales-price, the proposition was up 
to the public. Or rather, no, it was not. For it was 
argued that the roundabout process yielded a surplus of 
things, of goods specifically traceable to the employment 
of technological agents bought or hired with the proceeds 
of the loan, and that therefore a dividend remained from 
which interest was taken. This surplus would, then, 
account for both the existence of interest, and also for its 
rate, productivity-changes being followed by correspond- 
ing interest-rate movements. 

Now, this idea must be dealt with essentially in the man- 
ner of earlier critics. In the first place, namely, techno- 
logical superiority was often understood as a physical 
fact, and that of course was a mistake, since no fixed 
quantitative relation between supply and price ever 
existed, or at any rate has not so far been established. A 
rough correlation no doubt exists. It may well be assumed 
that, for a short time and for a specified group of goods, 



DISTRIBUTION 121 

a sudden lowering of cost, a marked increase of stocks, 
would yield larger total values and incidentally ensure the 
producer a better profit because of his new differential 
advantage and the relative immobility of labor and capi- 
tal. Besides, while wealth is distributed unequally, any 
new commodity may have an enhanced temporary "adven- 
titious" value, that is one not measurable by sheer utility. 
Higher complementary values have been shown to emerge 
in this manner and to permit higher prices and profits. 
Whenever the demand for goods is elastic, and capital is 
employed in such novel ways as to ensure the enterpriser 
an appreciably lower cost, interest-rates may be raised 
since the borrower has compensations in the price. When 
technical superiority affords a differential, and not the 
absolute advantage for all classes of producers in avail- 
ing themselves of the indirect method, an increment of 
profits appears, the anticipation of which will not only 
make interest possible, but also tend toward higher bids 
for the use of capital as a loan-fund. Still, rates of 
interest have not yet been correlated with differentials of 
technological cost, or with supplies ! 

In the second place, while output and prices for goods 
and hence for loans might be compared, it would often be 
difficult to find that portion of the product which was due 
entirely to the use of capital ; that is, either to all capital 
used, or to such fractions as were considered by Margin- 
ists. Since most goods are joint-products, representing 
more than one sharer, the old objection would again have 
weight. Imputations would be made without being verifi- 
able by precise measurements ; for either as specific 
physical or as value productivity the share of capital 
would be indeterminate. The interdependence of agents 



122 A CRITIQUE OF ECONOMICS 

of production has usually prevented experiments of addi- 
tion and subtraction for the measurement of a single 
agent's product. In the words of J. S. Mill: Such a 
procedure was doomed to failure and hence forced upon 
economists a deductive method, because owing to a 
"composition of causes" causes and effects could not be 
so separated as to be assigned to specific conditioning 
facts. The events of the social world in this respect differ 
absolutely from those observed by the chemist, so that no 
test exists for showing what a particular lump of capital 
has produced when linked with other factors of production. 

But in the third place, was not the productivity theory 
subject to the same limitations that weakened the case 
for subjectivistic price analysis in general.'' Was it not 
evident that value-productivity regardless of "impatience" 
varied with the price-determinants of goods, where goods 
intervened, and that hence nothing was gained by the 
concept of productivity unless the laws of price had first 
been stated — which we saw is impossible by psychological 
analysis — and unless some degree of regularity for the 
price of the service in question, as representing a definite 
ratio, could be proven? What was the advantage of inter- 
posing a y between an x and a z, when all three were 
unknown quantities? Was not the lack of objective data 
as disastrous to a hope for distributive laws as ever? And 
furthermore, was not the creditor lending capital (rights) 
whose value was predetermined rather than computed later 
according to its technical effectiveness? So far as the 
causal aspect of the matter is concerned, this might well 
be said, and was said. 

Margins. The question was complicated by the fact 
that here, as in the statement of the law of wages and rent, 



DISTRIBUTION 123 

a margin was introduced to give an appearance of exact- 
ness to conclusions, and also at times one of ethical import. 
The same psychology that prompted the Marginists to 
speak of margin xl utility and value also led them to 
apply least or last quantities to the problem of distri- 
bution. As indicated, productivity figured in the price 
of services, and not of commodities, because these former 
were rendered so frequently in an impersonal way. Hence 
its place under the heading of Distribution ! The margin 
however was not peculiar to Distribution, as everybody 
knows. It functions elsewhere in great solemnity. But 
since incomes were prices, nothing else could be expected 
than an extension of marginal reckonings over the whole 
field of value. 

But how many margins were there ? It will repay us to 
tabulate the margins used in the three principal divisions 
of economics (see Tables One and Two). It will be seen 
that there was quite a number, and that consistency was a 
hard thing to maintain in the midst of so many standards. 
The price-margins for consumption goods were the pri- 
mary ones, so to say, the others being derived from 
them logically. Of course, if productivity was treated as 
a physical fact — and this happened often enough — price 
margins had nothing to do with it. But strictly taken 
productivities should have been values, that is events 
sprung from a psychic fact, namely from utility or grati- 
fication or want — call it what you will. The two views of 
productivity were not always kept apart, partly because 
of the Ricardian ancestry of agricultural margins, and 
partly because with respect to labor and capital the 
diiference between a thing and a value was easily over- 
looked in an argument. But if margins were used on 



124 A CRITIQUE OF ECONOMICS 

the orthodox principle, only differential costji could furnish 
a physical standard. That is, in fixing prices at a long- 
time view, by minimum non-pecuniary costs, no violence 
was done to logic. It would only be necessary to find out 
whether costs directly or through supply do determine 

values. 

TABLE ONE 

CLASSIFICATION OF MARGINS USED IN MARGINAL ECONOMICS 

/. Price 

1. Margin as last consumed and least gratifying part of a good 

used at a given time. 

2. Margin as least wanted good out of a stock of different kinds 

of goods. 
2a. Margin as least gratifying kind of use of a good having several 
uses. 

3. Margin as marginal value. 

4. Margin as maximum (long-run minimum) expense of production 

(costs). 

II. Distribution 

1. Margin as maximum impatience for the consumption of a good. 

2. Margin as least effectively used dose of capital (stock or fund). 
2a. Margin as least valuable use of capital. 

3. Margin as least effectively used dose of labor. 

4. Margin as least effectively used dose of land. 
4a. Margin as least valuable kind of use of land. 
4b. Margin as worst land (physical basis). 

5. Margin as least efficient enterpriser (dose of enterprise?). 

Note : Margins I, l-2a, and II, 1 are the only ones having a physiological- 
hedonistic basis. 

Comparing the margins further, it is seen also that some 
shares were related to several margins, while others had 
each one margin. All shares except enterprise had a 
proportionality-margin ; that is, when a margin was used, 
it was a last dose of any one share relative to the amon/nts 
of other shares. It was a question of ratios of either 
physical or value agents. But for land and labor the 
margin bore on intrinsic differences of productivity as 
well as on such productivities as would depend upon ratios 



DISTRIBUTION 



125 



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126 A CRITIQUE OF ECONOMICS 

of the agents operating jointly. Again: The units to 
which the margins referred were not all the same. It 
might be a single productive act, or the output of a whole 
plant, an acre of ground or the farm-land of the entire 
country. Whether the choice of one or the other unit 
made a difference for the argument, or whether it was of 
no moment, could not be easily inferred from the actual 
use made of the marginal concept. And finally, there 
remained the interesting fact revealed in the Table, and 
long understood by economists, that rent and profits 
moved above the margin, while wages and interest were 
fixed at the margin. So this margin really had two func- 
tions, not one. It would be worth while to show why the 
shares had to, or could not, coincide with marginal pro- 
ductivity. Was it not the poverty of labor and its 
theoretical mobility that made the least productive man set 
the pace for all others? Was it not greed that won in 
enterprise, and failed in workingmen? Was it not the 
convertibility of capital as a value-fund into anything, and 
its reproducibility, that gave it a place at the margin 
when landlords could go on exploiting their monopoly or 
at any rate the unique properties that Ricardo spoke oi? 
The intrinsically worst or worst used, land was the begin- 
ning of rent for .^ll superior outputs, but the least 
effectively used capital provided no surplus. The rate 
of interest was fixed by the latter, if we believe the 
productivity economists. And the enterpriser? He was 
his own boss. He was a legal factor like capital or land, 
and therefore got the benefit of differential advantages 
which a laborer lost by being replaceable, within his class, 
by another fellow. Proportionality when well observed 
helped labor only in one respect, viz., by increasing the na- 



DISTRIBUTION 127 

tional output. But it gave the enterpriser two profits, viz., 
first in letting him share with the others the increased na- 
tional output, and secondly in allowing him, within his 
own field or plant, to keep the surplus above maximum 
costs. 

But apart from these inconsistencies in the use of terms 
and arguments, there remains to be noted the difference it 
made for the Marginal analysis whether we think of 
natural productivity (in things or values), or of propor- 
tionality. That lands differed in natural fertility, so that 
the yield of the better might be reckoned by that of the 
worst, was one thing; but that two like acres could be 
put to such different uses, through choice of crops or 
proportions of technical agents, that one became marginal 
and the other supra-marginal, that was a second thing. 
The worst land physically might not be marginal if 
treated better technically than land naturally more fertile, 
so that our standards for measuring shares overlapped. 

And similarly with respect to the imit of the productive 
act that furnished the margin. Was it a single productive 
act such as the building of a house or the manufacture of 
a pair of shoes.? Or was the output of the whole plant 
the unit for detecting the margin, for measuring the 
values above it.'* Ideas on the size of a market, and time- 
units in addition, should have been properly related to 
this assemblage of margins — if feasible. But neither for 
intrinsic nor for proportionality productivity was this step 
taken. Indeed, could a margin of any kind be found on 
the dosing principle .-^ Did business calculate in this man- 
ner .f* Did it experiment so painstakingly as to have a 
fairly accurate record of relative yields and imputable 
incomes.? It was granted by theorists that their argument 



128 A CRITIQUE OF ECONOMICS 

involved a picture for ratiocination rather than for verifi- 
cation. And one is constrained to accept the apology. 
But finally, the margin was useless not only because it 
presupposed a wrong psychology of valuation, that is a 
thoroughly mistaken idea of law and causation, but be- 
cause, once more, marginal productivities were as little 
measurable as absolute productivities of any one agent 
used jointly with others. Whenever producers worked 
together, whenever by-products were in question, whenever 
values belonged to the group of complementaries, the hope 
of finding a margin of productivity was a forlorn one. 
Hence the marginal standard could not do what hedonistic 
theories as such could not do, and the problem of income 
remained unsolved. 



CHAPTER FIVE 
PRODUCTION 

The Place of Production and Consumption in Eco- 
nomics!. — It has often been acknowledged that the science 
of economics dealt virtually with nothing else than price 
and distribution. It was in these two divisions that laws 
were sought and formulated. On the exposition of their 
salient points the foremost economists spent most of their 
time. Once price and income had been treated the pre- 
tense to exact science in one sense vanished, for few 
definite laws of production or consumption were ever 
elaborated. Consumption, to be sure, gained importance 
with the rise of collectivism and again under Marginism. 
The Historical School saw in studies of consumption a 
special method for suggesting political remedial measures, 
or for bringing out forcefully the bearing of thrift on 
progress, if not on taxation. The socialists favored the 
consideration of consumption as a logical division in 
economics, the term being in all cases interpreted as a 
physical or psychic, but not as a value, fact. Consumption 
from Naturalism upward meant use of wealth and precepts 
for conserving natural or national resources. Only with 
the entry of Marginism did consumption assume a psycho- 
logical meaning which at the same time became an integral 
part of the price analysis. It was Jevons, e. g., who 

129 



130 A CRITIQUE OF ECONOMICS 

wrote: "Economics must be founded upon a full and 
accurate investigation of the conditions of utility ; and to 
understand this element we must necessarily examine the 
wants and desires of man. We shall first of all need a 
theory of the consumption of wealth." ^ In other words, 
Marginists identified a theory of valuation with certain 
physical and intellectual aspects of use and reaction or 
responses, thereby adding to the old conception of con- 
sumption a new one. Consumption was held to mean 
valuation mainly with reference to such acts of gratifica- 
tion as the inward and outward use of scarce goods 
brought with it. 

However, consumption did not really become a well 
recognized portion of a science of economics, in spite of 
some notable attempts in that direction. The principles of 
valuation were treated under value or price, and that 
ended the matter. If anything else was written it fell 
under the rubric : Thrift or Taxation, or Wage-Earners' 
Budgets; etc. Nor did Production expand in the degree 
that the beginnings of economics might have suggested. 
The victory of Utilitarianism robbed the physical, collec- 
tivistic view of prosperity of its prestige. Thereafter 
individualistic, entrepreneur concepts held men's attention. 
It was an examination of price and shares of the national 
dividend that fascinated most minds ; and so the division 
that had first preoccupied the Naturalists dropped out of 
sight. There was a good reason for it, too, and one which 
is not hard to guess. Namely, the trend of economists was 
toward a formulation of exact laws, of laws built increas- 
ingly on human nature. And how could Production 
compare with Value in this respect.? The laws of produc- 
> "Theory of Political Economy," 1879, p. 42. 



PRODUCTION 131 

tion were either physical or they pertained to values. If 
the former, could they be found? If the latter, was the 
avenue of aproach not a diagnosis of pricing processes? 
The situation was clear enough. 

Production consequently could not mean much to a 
science of economics as built up with the aid of eighteenth 
century logicians and psychologists. As a division it 
remained noteworthy only because it gave rise to a number 
of basic ideas that were used over and over again in the 
analysis of value or distribution. Since these fundamental 
definitions ordinarily found an initial statement under the 
caption Production, and since by this step the field of 
economics was more or less explicitly delimited, and a road 
paved for the announcement of economic laws, Production 
must even today interest the historian or critic. But 
otherwise it involves no new problem. That economists 
devoted many chapters to the description of an existing 
regime, and thus had much to say a propos of Production, 
Is true. The space assigned to this division is ample in 
the larger works. But one cannot overemphasize, at the 
outset, the fact that these long chapters describe merely a 
prevailing business organization, or treat of practical 
questions whose solution could never be seriously offered 
as a part of economic laws. What is genuine science in 
most books on Production fills but a few pages; the rest 
consist of a review of facts as facts. ^ 

On Laws of Prodiiction. — One law of production was 
evolved early In the history of economics and may be 
reviewed before passing on to items of definition ; and that 
was the law of productivity. There were In fact two 

* For a recent statement on gaps see Woolman, L., in Am. Ec. Bev., 
March, 1921. 



132 A CRITIQUE OF ECONOMICS 

distinct laws of productivity which only through an over- 
sight, or because of a certain historical interrelation, 
paraded sometimes as one. To wit, there was the thought 
that, for example, an acre of land would in the course of 
time yield less, tliis phenomenon being originally called the 
law of diminishing returns ; and there was the very 
different notion that things used jointly must be used in 
definite proportions at a given time and place, if the best 
results were to be secured. The two versions not only 
differed appreciably, but should without exception have 
been kept distinct.^ 

The law of diminishing returns referred of course to 
physical output. It spoke of things, and not of values. If 
a law of physical returns was to extend also to price it 
could be only on the assumption that a more or less fixed 
quantitative relation existed between physical and market 
supply on the one side, and price on the other side. This 
supposition was common enough, and had a foundation in 
facts. But what Malthus and Ricardo and many of 
their disciples in England, on the continent in Europe 
or in America thought of was the relative growth of popu- 
lation and of food supplies. Studying this ratio, the well 
established fact of soils becoming exhausted (if great care 
was not taken) assumed a sinister aspect. The law of 
diminishing returns created a sensation ! At the same 
time it was of course also known that any plot of ground 
will yield a limited amount, so that the n^eds of a whole 
nation could not be supplied from one acre, no matter 
how diligently one cultivated it. But this law of limited 
physical returns, if one may call it a law, had no purpose 

'Various concepts of productivity are discussed by Liefmann, R., 
in Conrad's Jahrb., 1912, pp. 273-327. 



PRODUCTION 133 

in economics beyond helping to explain the scarcity of 
want-satisfying things. 

Considering that Utilitarianism dealt largely with 
things, as opposed to value concepts, there was logic in 
its treatment of a law of physically dwindling returns 
from a long-time view. But when this law was understood 
to refer to less than proportionate increases of wheat 
relative to certain increases of labor or capital in the 
working of the soil, the thought arose naturally enough 
that perhaps land was not different from other agents 
in this respect. The question could be, and was, raised 
whether capital would yield always in proportion to 
added amounts of land or labor; and the reply was in 
the negative. So, after a while, diminishing returns as a 
theory of supply relative to population lost prestige, all 
four factors of production being placed on a par. Yet 
it should have been remembered that since all goods came 
ultimately from land in the wider sense, the declining rate 
of yield of land had a deeper significance than any law 
of the proportionality of returns. For plainly, rising 
returns in machinofacture or elsewhere could not avail, 
if the farm or mine continued to yield less on account of 
exhaustion, or boasted only of a stationary output. But 
perhaps this was felt to be a dynamic view of produc- 
tion that had no place in a generally static analysis of 
values. 

As regards the exact law of proportions, however, this 
had weaknesses that it could not take long to point out, 
and for which no remedy was in sight. For instance, if 
we accept it at its face value, it was a statement of propor- 
tions of things necessary to produce the best results. The 
intimation made is that definite amounts of things have to 



134 A CRITIQUE OF ECONOMICS 

be used if maximum efficiency is to be attained. But when 
we look a little closer, asking ourselves what these "things'* 
are that must be used in fixed proportions, we shall have 
difficulty in defining them. If productivity was output of 
values, we may or may not assume that the producing 
agents also represented values. It need not follow, though 
we might decide to that effect. But regardless of what was 
meant by the product, whether things or dollars, the 
factors of production surely had to be either physical 
facts or value facts. If the former, there was no way of 
finding proportions, since in a rigidly logical sense 
thousands of different kinds of events would contribute 
toward the joint result, it being impossible for us to find 
even for a given moment all the ratios really involved. 
And of course, the ratio would change virtually for each 
act of production, owing to a general law of change over 
which humans have no control. But furthermore, if 
physical things were meant by proportionality, who could 
say how much of each was used, or should be used, to 
achieve the best results, and what bearing this output of a 
physical supply had upon its value? 

It may therefore be assumed that economists had in 
mind a principle of value proportions when they showed 
that there is but one best way of doing things. But in 
that case also the law was not as startling as might have 
appeared at first sight. For in the first place it remained, 
then, to identify definite amounts of values with definite 
amounts of things, of materials or services, if the law was 
to assume a technological significance and teach anything 
for future ends ; but such a specification of things relative 
to their values was never attempted. And so in the second 
place the law necessitated a reduction of all physical 



PRODUCTION 135 

factors of production to four legal factors, the relative 
amounts of which could be varied to find out which propor- 
tion yielded the largest pecuniary values. From the entre- 
preneur's standpoint, of course, a ratio would then have to 
be established between product and profits to warrant his 
choosing a particular proportion; for it was net profits 
that interested him, not merely sales. And how could this 
relation be made part of the proportionality argument? 
But again, values of management and labor could not be 
compared with those of capital or land ; nor could profits 
be regarded as causally derived from such proportions of 
values, since these in part presupposed a profit. Nor was 
there any way of tracing particular dollars of any one 
agent to particular physical supplies turned out, or of 
distinguishing nicely between dollars of labor and those of 
interest on capital. 

The whole theorem therefore proved delusive. For 
all economists it meant that on two counts the only law 
deemed important in Production had proven worthless, 
viz., first because it established neither constant physical 
nor value ratios of specifiable elements of production, and 
secondly because it treated of elements that orthodox 
price and income students did not know by name, since 
they recognized only four legal factors. Thus we have 
on the one hand the familiar fact that a producer, by 
violating the law of physical proportions, could reduce 
supply and frequently swell his profits ; and on the other 
the startling fact that if stable quantitative relations for 
highest efficiency were discoverable, they could mean noth- 
ing for a theory of distribution; and this in spite of a 
"productivity-theory" among Marginists. 

On Definitions in Production. — Let us pass over now to 



136 A CRITIQUE OF ECONOMICS 

some basic terms that were usually stated preliminary to 
a discussion of production. (See Table III.) 

Beginning with J. B. Say, the French popularizer 
of Adam Smith, definitions made up a notable part of 
economic science. More and more the drift was toward 
precision and logical interrelation. Agreement was by no 
means easily reached, nor permanent on all leading ideas ; 
but none the less unanimity was attained more nearly on 
definitions than on laws of applications. The chief defini- 
tions sprang directly or indirectly from psychological and 
legal premises, or from ideas of law and social causation 
that will soon engage our attention. They reflected the 
longing for systematization, but they also brought in their 
wake certain anomalies that have elicited much good- 
natured ridicule on the part of critics. 

Before production could be defined, or at least im- 
mediately after defining it, a few other terms needed to be 
known, and so bounds had to be set to economics from the 
start. Utility, it was decided, was anything capable of 
gratifying any want. It did not matter what the hygienic 
or moral or political consequences of an act of satisfac- 
tion, if this latter depended on the use of a certain thing, 
this thing was a utility, or was useful. This was a com- 
monplace that, on the whole, found speedy acceptance. 
If, however, it was asked whether any utility constituted a 
value, or whether the creation of any utility was a produc- 
tive act, two different answers were given. To some it 
seemed that utilities had to be scarce in order to become 
"economic," while others granted the significance of scar- 
city for economic studies, but did not absolutely insist on it 
as a prerequisite in production. The great majority 
leaned toward inclusion of scarcity, defining it as insufB- 



PRODUCTION 



137 



TABLE THREE 

LOGICAL ORDER FOR BASIC CONCEPTS OF ECONOMICS AS A SCIENCE 



Prodv^tion 


Consvmption 


Price 


Distribution 


Want 








Utility 


Use 


(Absolute) Value 




Scarcity- 








Trans ferability 




(Exchange) Value 


National Dividend 


Good (Value) 




Money 




Wealth 








Production 


Consumption 


Price 


Distribution 


Factor (Agent) 






Share 


Land 






Rent 


Labor 






Wages 


CaP"al{fr„* 


Savings 




Interest 


Enterprise 






Profits 


Rates of Return 


Utility, Degrees of 


Cost C Ris'g 
(Expenses) { Fall'g 


Cost 
; (Expenses) 






Supply 


Supply 




Complementary 


Demand 


Demand 




Utilities 


Capitalization 


Impatience 

Productivity 
(Standard of Living) 



Notes. 1. Premises are: Private property, freedom of contract, of vocation, 
and of residence (i.e., a competitive regime). 

2. For Marginal economics add the concept of margins of several kinds (see 
Tables One and Two). 



138 A CRITIQUE OF ECONOMICS 

ciency relative to demand at some price. Anything so 
abundant as to be had for the asking would not entail 
effort on the part of man. Nobody would give anything 
for it, and so it could not enter the markets. Since, then, 
neither effort nor exchange nor price would connect with 
"free" goods, they did not concern the student of 
economics. What was wanted was a thorough comprehen- 
sion of price and income facts. These held out the greatest 
promises to a believer in social laws. And so insufficiency 
of supply became a natural attribute of things economic. 

But it was not done with these two conditions. For 
human laws plainly affected economic organization and 
processes. The legal facts had even in the eighteenth 
century provided premises for economic investigators ; 
and so it came about that legality, too, figured as a quality 
of value. If governments prohibited trade in a scarce 
utility, that made it theoretically non-economic. Trans- 
ferability was as necessary a condition as usefulness or 
scarcity. In other words, to have value, a utility had to 
be both scarce and transferable; but having these two 
attributes it became a "good." It became valuable, or had 
value ; and the creation of values was a productive act or 
more briefly. Production. 

An article might, then, be transferable so far as the 
law had anything to say, but if not regularly in the 
market it was not an economic good. Neither were illegiti- 
mately exchanged articles economic in the strict sense, nor 
things vital to life or welfare, if too plentiful as a rule to 
fetch a price. On the other hand, values could come into 
existence without any effort by men, for if they were 
wanted, scarce, and legally exchangeable, like diamonds 
found accidentally, or appreciations of ground held by 



PRODUCTION 139 

speculators, this fact itself made them goods and an object 
of economic study. It was not labor that decided the case, 
as was shown from the inception of the science, but want 
(respectively demand) for goods at a price. 

Private property and an individualistic viewpoint were 
responsible for these definitions. Wealth by common 
consent was an individualistic concept, although opinions 
as to its exact meaning differed. One writer said that 
wealth "consisted" of all potentially exchangable means of 
satisfying human needs"; another meant by it the 
"sources of human welfare which are material, transfer- 
able, and limited in quantity" ; ^ a third one thought it 
consisted of "material objects owned by human beings"; 
while Mill in his "Principles of Political Economy" main- 
tained: "Everything forms a part of wealth which has a 
power of purchasing ; for which anything useful or agree- 
able would be given in exchange".^ Thus a variety of 
interpretations might easily be hunted up; but predomi- 
natingly wealth signified scarce, useful, transferable 
things, that is a fund of values rather than of utilities 
irrespective of their scarcity. But of course, since value 
was not necessarily a tangible utility, and since each per- 
son was his own judge as to what he wanted, values might 
pile up without benefit to the larger social group, without 
taking such form as the majority could perhaps wish. 
Thus a practical defect of the definition of production 
was its indifference to classes of concrete or inconcrete 
goods, to their ratios, and to a standard of value that 
might have made the sum of individual fortunes equal to 
the wealth of the nation. By degrees goods were classified 

* Keynes, J. N., Scope and Method of Political Economy, 1896, 
p. 92. 
'Preliminary Remarks. 



140 A CRITIQUE OF ECONOMICS 

variously, to serve new purposes ; but that only empha- 
sized the error of defining production as a creation of 
values. Thus goods were divided into reproducibles and 
non-reproducibles, into publicly or privately owned goods, 
into tangible (form) or intangible (time, place, and 
rights ) values, into land and non-land wealth, into capital 
and consumption goods (capital embracing however three 
distinct categories, as already shown), into goods ad- 
mitting of one use and durable goods ; etc., etc. 

Of recent years these classifications have won popularity 
and been put to excellent uses ; but they could not offset 
the acquisitive, hedonistic foundation of the main defini- 
tions. Economics had developed into a science by dealing 
exclusively with exchange-facts, and this ideal was never 
abandoned by the bulk of economists. If the question 
came up : What is "economic?" they said perhaps : Data 
relating to men's activities in earning a living. But this 
was not true to their analysis of price : nor would it have 
permitted the definition of wealth as a fund of values. 
Neither free foods nor facts outside of exchange were in- 
cluded in the answer. What actuated economists most of 
all was the desire to reduce the manifold of economic life 
to uniformities and regularities, and to do this the psy- 
chology of sensationalism was invoked. Laws of associa- 
tion furnished the grounds for an "economic man". 
Through this abstraction a self-suflScient exchange-mech- 
anism was constructed within which real laws should 
obtain, explaining adequately all wealth-data. This was 
the program adhered to by all groups except Historians 
and socialists. Because of these premises economics re- 
mained in so large a part a tissue of postulates and cir- 
cular reasoning. 



PART TWO 

A CRITIQUE OF ECONOMIC 
METHODOLOGY 



A RESTATEMENT OF THE PROBLEM 

So far our concern has been with doctrinal economics, 
that is, with the main body of economic teachings and 
with the psychological premises underlying them. It has 
been shown that sensationalism is an untenable theory 
of valuation — something conceded by all. Furthermore, 
there can be no doubt that psychic states, strictly speak- 
ing, are always immeasurable, and thus preclude the use of 
psychology for measurements as exact as those that Utili- 
tarianism or Marginism laid claim to. In short, not only 
did margins as a technical aid prove inadequate, but in 
addition the groundwork of orthodox economics gradually 
crumbled because of changes in sciences basic to the old 
discipline of catallactics. Price, income, and produc- 
tivity laws are not what they seem to be. Real quantita- 
tive laws have not been found in those divisions of eco- 
nomics, although as a qualitative analysis sensationalism 
rendered excellent service as long as psychologists them- 
selves could offer nothing better. 

But the question now is : If a new principle of valua- 
tion, and in part even of human motivation, must be found, 
what becomes of statics and catallactics as principal fea- 
tures of the conventional economics? Is it possible to 
retain these ideas and terms, if the key to valuation, to 
income and economic history, must be sought in facts en- 
tirely at variance with those expounded by eighteenth 
century philosophers? Supposing we desire to continue 

143 



144 A CRITIQUE OF ECONOMICS 

our economic researches for laws, must we not discard 
more than our old psychology, and will not many questions 
arise that are not directly economic ? 

In other words, with the abandonment of certain funda- 
mental premises of orthodox economics we are forced also 
to face anew the query whether economics is a science as 
pictured, whether it may continue to be treated as a 
science providing generalizations comparable with those 
of phj'sicists, whose labors were originally the inspiration 
of Quesnay and Smith. A methodological problem is in- 
volved because of the nature of our subject, and because 
the accepted methodology of the first formulators of catal- 
lactics has likewise suffered from changes in allied fields. 

We may ask thus: If psychic quantities could not 
furnish the degree of empirical exactness once hoped for, 
shall we give up this type of research entirely, or is there 
another way of relating economic events quantitatively.'' 
Is our conception of a law to remain what logicians have 
until recently preferred it to be, or may we draw a com- 
parison between physical "exact" law and others in such 
a way as to prove continuity between, say, physics and 
economics? What is the difference between law and cor- 
relations of the statistical sort? How far may laws be 
arrived at deductively, conformable to principles de- 
scribed by Formal Logic? Are physical events causally 
related in a sense that the socio-economic are not? Is 
causation something distinct from either law or correla- 
tion? Can we properly impute to particular events or 
groups of events a value that economists may use for 
distributive theories, or when bent on a moral errand? 
What is to be said in favor of a social science that agrees 
with our present-day information on human nature, on 



A RESTATEMENT OF THE PROBLEM 145 

the limits of inference, on the essence of knowledge and 
truth-finding? 

Approached from this angle the defects of the Utili- 
tarian-Marginal teachings become much more significant 
than appears at first sight, thus leading up to questions 
of method that are far from incidental in an appraisal 
of the outlook for economics. What must be examined 
evidently is the inward nature of deduction as used by 
scientists, the relation between deduction and induction 
in a formal analysis, and the possibility of arriving at 
any economic laws by a method purely deductive. It is 
a case for the methodologist as well as for the student 
of pricing processes. The relative merits of deduction and 
statistics are at stake on the one hand, and those of ex- 
perimental versus statistical induction on the other hand. 
All in all, a wide survey must be made that goes far beyond 
the bounds of any one science. If sensationalism is wrong, 
points in orthodox logic also need correcting. If statics 
and catallactics are shown to disagree with our newer 
thoughts on human nature, on social processes, and on 
the laws imbedded in them, then new light may also be 
needed for defining the scope of economics, for discover- 
ing the general principles governing a delimitation of 
sciences, for tracing the right relation of economics to 
ethics, and of economics as a science to applications 
thereof by politicians or theorists of diverse tempers. 
Whether economics is a science we may not consider an 
important question in the end, but that new topics deserve 
our attention, that methods and ideals will call for recog- 
nition which earlier economists ignored, this change must 
assuredly excite our interest. 

A critique of scope and method is therefore an integral 



146 A CRITIQUE OF ECONOMICS 

part of our work, especially after the old foundations 
have been pronounced unreliable. We must become 
methodologists before gaining new strength as economists. 
In methodology we unite the interests of logic, epistemol- 
ogy, and psychology. We turn to the facts of psychology 
for an insight into the ultimate questions of knowledge, 
but we must also link it with logic and scientific method. 
The methods of science in general have special applica- 
tions for any one science, and the analysis of law and 
causation in general bears closely upon our view of truth 
in sociology or economics. As methodologists, in fine, we 
gather materials scientific and ultra-scientific or meta- 
physical. Yet this does not prevent us from keeping our 
eye steadily upon the main economic problem, nor from 
proceeding empirically at all turns. Methodology is 
always a natural terminal in scientific investigations, but 
particularly so now that we are confronted with new 
aspects, with data different from those that guided 
logicians a century ago. 



CHAPTER SIX 
INFERENCE 

Deduction. — The subject of inference has been for 
many years studied under two headings, viz., first as 
deduction and secondly as induction. It was understood 
from the start that deductive reasoning is in a class by 
itself, but eventually thinkers also came to a realization 
of the importance of induction, and of its peculiarities 
which deserve serious consideration no less than the syllo- 
gism. Indeed, for purposes of social science it can hardly 
be stressed too much that the major question is not 
whether deduction and induction represent opposite types 
of thinking — although this has often been said and made 
a center of discussions — ^but rather what the difference 
of materials is that these two forms of inference work with, 
and to what extent conclusions from chosen premises may 
claim a superiority over the generalizations gained by 
induction. Certainly it is agreed that deduction is by no 
means the whole of the process by which men arrive at 
worth-while knowledge, nor need the methodologist busy 
himself with the many problems involved in formal deduc- 
tion except in so far as they throw light upon their rela- 
tion to scientific methods. For our present needs there- 
fore the best plan is, first to point out once more the 
salient features of formal deduction, secondly to contrast 
with them the broader demands of scientific induction, and 
third to add a few words on the ultimate postulate under- 

147 



148 A CRITIQUE OF ECONOMICS 

lying induction, not to cast doubt upon the validity of 
scientific conclusions known as law or causation, but to 
prepare indirectly the way for a close examination of the 
relative merits of inductions by natural and social sci- 
ences. In reality inference and law or causation are inex- 
tricably interwoven. There is scarcely an excuse for 
sundering them. But since method, and notably the 
process of reasoning, is after all distinct from its subject- 
matter and final results, a consideration of each by itself 
is justifiable. 

As to deduction then: If we take the old syllogism 
about Socrates as a most important type, we find that 
everything depends upon a proper statement of relations 
between universals and classes. It is with concepts, with 
axioms and degrees of inclusiveness that formal logic 
builds. Laws of Thought are : A is not not-^ ; everything 
is either A or not-^; and A is A. With the aid of these 
and possibly a few other postulates such as that an 
assertion is either false or true, and that some proposi- 
tions may be recognized as true, logicians have constructed 
their moods and figures of a categorical or disjunctive 
or hypothetical syllogism. In the premises appear a 
generalization and a particular instance, and in the con- 
clusion the particular is connected with a universal ac- 
cording to fixed rules. 

If we say, thus, that all men are mortal, and that 
Socrates is a man, we must infer that Socrates also is 
mortal. It is the definition of a syllogism that, two 
propositions being given, a third must necessarily follow. 
The relation of the particular to the universal is brought 
out in this manner. Terms and definitions are important 
in that either we are dealing with one attribute only, such 



INFERENCE 149 

as mortal, and equate it with "all men," or else make 
the more inclusive term contain the less inclusive. That is, 
either we say : All man = mortal, Socrates = a man, 
therefore Socrates = mortal ; or we make "all men" a 
part of "mortal," and Socrates a part of "all men." It 
then follows from the axiom "a part of a part is a part 
of the whole" that Socrates must die. But we might also 
find our justification for the conclusion in the other axiom 
that A being equal to B, and B equal to C, A must likewise 
be equal to C. So far as syllogism is concerned, this is 
the basis of its validity. As long as the human mind re- 
mains constituted as it is to-day, conclusions may be 
drawn from antecedents according to definite procedures 
known to Formal Logic. The terms need not represent 
any meaning, nor refer to facts of the outside world. It 
is a mechanism of classes that we are dealing with, a jux- 
taposition of magnitudes in a certain order. Whether 
we construct the syllogism for the first time, and thus 
arrive at a novel impression, or repeat the performance 
for the millionth time, the results will always be the same, 
and the proofs as good the last time as the first. "Dis- 
covery is an accident, and not an essential of inference" ; ^ 
and "deduction is nothing more than inference from pos- 
tulates, whose truth or falsity is immaterial to the argu- 
ment." ^ 

It should not surprise us, however, if in view of this 
abstraction essential to syllogistics men have asked 
whether discoveries can be made thereby, or whether not 
all formal deduction involves a real, albeit adroitly 
veiled, begging of the question? This criticism certainly 

^Bosanquet, B., "Logic," 1888, vol. II, p. 8. 

'Mercier, Ch., "A New Logic," p. 404. See also Lewis, C. I., 
"Survey of Symbolic Logic," 1918, pp. 359-60. 



150 A CRITIQUE OF ECONOMICS 

gained momentum with the Renaissance in Europe and 
eventually led to the study of scientific methods which 
now are part and parcel of an inductive logic. The con- 
viction grew that deduction is not the fruitful source of 
information that it was heralded to be. Instead men came 
to believe — to quote a passage representative of others of 
a similar tenor — that "inference is over when the premises 
have been brought together," '■^ it being "the peculiarity of 
the syllogism that the conclusion does not advance beyond 
the premises . . ." ^ Increasingly then logicians have 
stressed the difference between syllogistic premises and 
those serving us in everyday life or in the pursuit of a 
systematized body of knowledge. The question has been 
persistently put : How do we get hold of our universals 
in formal logic.'' What entitles us to construct an equa- 
tion out of predicates if they are not simply abstract mag- 
nitudes or entities-in-order, but meaningful facts gathered 
as part of our life's experiences.'' Or to apply the prob- 
lem to the proposition about Socrates, why do we assume 
that all men are mortal and that Socrates is a man.'* How 
do we know this? What rational grounds have we for 
the assertion.'' 

Psychology of Induction. — Now so far as we are willing 
to discuss this matter in terms of psychology at all,^^ we 

"Schiller, F. C. S., "Formal Logic," 1912, p. 208. 

* Bain, A., "Logic, Deductive and Inductive," edit, of 1874, p. 
207. See also Jevons, W. S., "Principles of Science," 3. edit., p. 219. 
For a later critical discussion see Joseph, H. W. B., "Introduction 
to Logic," 1916, chs. 14, 17-8. 

*» For literature on relation of psychology to logic see, among 
others, the folloviring: Husserl, E., "Logische Untersuchungen," 
1900, pp. 50-227, where a transcendental logic is defended on broad, 
Hegelian lines. For relation of logic to scientific method see ibidem, 
Part I, p. 23 fF. ; Nelson, L., "Ueber das Sogenannte Erkenntnis- 
problem," 1908, in criticism of epistemology in general; Hegel, 
G. W. F., "Logic" (translated by Wallace, W., 1912), vol. II, p. 30, 



INFERENCE 151 

can never hope to improve much on the diagnosis sub- 
mitted by David Hume in the second quarter of the eight- 
eenth century. It must always redound to the glory of 
this searching skeptic that he was the first to elucidate 
the processes of induction to mankind, laying down a few 
basic principles that will have our approval as long as 
human nature remains what it is. Hume to be sure was 
mainly interested in an old problem of causation and of 
the limits of our knowledge, and so went farther in his dis- 
illusioning exposition than we now hold necessary. Kant 
was not satisfied that man was as impotent as his prede- 
cessor had seemed to prove, nor has the world since then 
failed to appreciate the positive elements of science, the 
fundamental sense in which events are real and our ac- 
tions progressively rational. Hume therefore should not 
be read as the final authority on reasoning, for this was 
not even his principal theme. But there is room for a 
psychological interpretation of logic, and notably of in- 
duction. 

If then we ask why we believe that all men are mortal, 
disregarding for the moment the logical validity of our 
beliefs, the answer will be pretty much what the Scotch 
philosopher himself pointed out, although in details we 
may differ from him. We have to admit, in short, that 

etc.; Gibson, W. R. B., "Problem of Logic," 1908, p. 104; Enriques, 
F., "Problems of Science" (translated by Mrs. K. Royce, 1914), 
pp. 47, 108, 121. The psychological basis or aspects of logic are 
emphasized by the following: Mill, J. S., "Logic," 1843; Pillsbury, 
W. B., "Psychology of Reasoning," 1910; Dewey, J., "How We 
Think," 1910; Schiller, F. C. S., "Formal Logic," 1912; James, W., 
"Principles of Psychology"; Goddard, H. H., "Psychology of the 
Normal and Abnormal," 1919, pp. 185-87; Jastrow, J., "Psychology 
of Conviction," 1918, Preface; Messer, A., "Empfindung und 
Denken," 1908, pp. 151-83; Ward, Jas., "Psychological Principles," 
1920, p. 348 et seq. See also Lipps, Wundt, Sigwart, Meinong, 
Hofler, and other psychologists or logicians. 



152 A CRITIQUE OF ECONOMICS 

men are so constituted mentally as to be impressed with 
repetitions of events in part or in toto. Repetition al- 
most literally turns out to be a source of truth, the past 
serving as a guide to the needs of the future. Recurrences 
and their similarities urge us to accept them as ways of 
nature, as bases for prediction, even though we are aware 
of the risks involved. What is more, we are able to-day 
to go beyond what Hume called the force of Custom, since 
physiologists have acquainted us with the neural mechan- 
ism through which excitations are guided and intercon- 
nected so as to ensure the right sort of responses in 
thought or deed. We need not take this picture of the 
neurologist too seriously, of course, for not even the essen- 
tials have been definitely verified; nor must we forget the 
contributions of other investigators in the field who would 
interpret consciousness as a phase of metabolism in all its 
diverse manifestations. However, as part of a psychology 
of inference the following facts deserve attention. 

Thus we know that the neurons which are the ultimate 
vital units of our nervous system, possess among other 
properties those of conductivity, plasticity, and retentive- 
ness in a high degree. They are so interconnected as 
to permit a recording of, and a response to, excitations 
either directly, as in the reflex-arc, or indirectly with the 
aid of the lower or higher brain centers. In these three 
planes our adjustment processes move, and as we progress 
from animal to human life the by-product of reaction takes 
more and more the form of an artificial environment, whose 
role gains steadily on that of the physical environment. 

Nerve-paths are partly set at birth, but partly also laid 
down during our lifetime. With the help of associative 
neural units and the areas of connection distinguishable 



INFERENCE 153 

in the cortex a multiplicity of paths and responses is 
assured. One stimulus may end in several reactions, and 
one reaction may wait on several stimulations. Innumer- 
able ramifications are being built up, which obedient to 
laws of selection, inhibition, and association, provide 
eventually a ready apparatus for meeting the exigencies 
of daily life. The learning process being one of adapta- 
tion to immediate and mediate surroundings, and memory 
being ever creative in the molding of our perceptions and 
ideas, man appears as the most rational of beings, who 
dwarfs his heritage of instincts by the enormous cumula- 
tions of knowledge acquired postnatally. 

But to follow up our argument. The resistance exist- 
ing at birth at the points of contact of the neurons is 
gradually broken down, so that our responses to stimuli 
become easier in proportion as they repeat themselves. 
Successive adjustments gain in accuracy and completeness. 
Practice makes perfect, and habits arise as a "fixed form 
of reaction." We get used to things, and attune ourselves, 
so to say, to the prevailing pitch of experiences. Thus, as 
we learn to respond and be ready at short notice, we also 
cultivate unwittingly a mood of expectation with regard to 
events that do not demand direct response. The oftener 
an event recurs, and the more regular its outward make- 
up, the more likely we are (barring counter-irritants that 
"inhibit") to look forward to a further repetition of such 
events. A belief is engendered in us that such experiences 
will be met with again. We count on them whether liking 
or disliking them. We anticipate them, even though oc- 
casionally fooled. We expect events to recur, basing our 
faith on nothing but the great number of happenings in 
the past. Thus faith is born and bred in us ; thus beliefs 



154j a critique OF ECONOMICS 

spring up not merely as regards common places, but nota- 
bly too with respect to recurrences that have always been 
purely mental, given to us by our elders as a part of our 
social heredity. Thus reason has little to do with our ex- 
pectations, and habit everything. "So far as empirical 
science can tell us anything about the matter, most of the 
proximate causes of belief, and all its ultimate causes, 
are non-rational in their character." ^ 

What is more, it should be emphasized that the force 
of enumeration or repetition applies to groups of events 
fully as much as to individual ones ; or to state the matter 
more precisely, we are led to believe the recurrence of 
groups of events even when only part of the group recurs 
at the moment of our speculation. All experience comes 
to us in series or blocks of events, whether they be con- 
crete things or psychic data or such events as the world 
around us offers in countless numbers. Strictly individual 
facts do not exist for us, though we have the ability to 
abstract them, and for specific purposes may attach to 
them distinct individual or differential meanings. And 
this circumstance that we sense everything in groups has 
had its share in developing in us the physiological ap- 
paratus for recording and remembering the groups. We 
learn by association, and connect events just as they ap- 
peared to our senses. "Acquired mental connections" of 
this kind account for our thinking of objects not present, 
and show why sensations should quite early in life be trans- 
formed into perceptions that differ from the former as 
much as a chemical compound differs from the elements out 
of which it arose. Whatever the final explanation of the 

= Balfour, A. J., "Foundations of Belief," 1906, p. 339. See also: 
Hibben, J. G., "Inductive Logic," p. 36; Jodl, F., "Lehrbuch der 
Psychologie," edit. 1916, vol. II, pp. 342-43. 



INFERENCE 155 

synthetic powers of our brain or mind be, this creative ele- 
ment has a physiological parallel in the associative capaci- 
ties of the nervous mechanism. Events often found to- 
gether, or having certain features in common, are likely to 
be associated in an act of recall. "Whenever a sensory or 
imaginal process occurs in consciousness, there are likely 
to appear with it (of course, in imaginal terms) all those 
sensory and imaginal processes which occurred together 
with it in any earlier conscious present." ^ Either through 
resemblance or through contiguity the association is 
brought about, and the latter is the one here applicable. 
For if events have frequently and with much regularity 
happened together, either in succession or simultaneously, 
we shall expect them to recur again as a whole. Though 
only a part of the situation be present to our senses, the 
principle of association restores to our mind the whole 
of it. We think of what is not present at the time, but 
was present and contiguous in time or space with what 
we do perceive. Thus our expectation is not only one of 
recurrence in the future for any one event, but it like- 
wise relates to larger sets of events, such as a thunder- 
storm or a landscape or street-scenes, or whatever occurs 
to us. "To have a clear case of expectation it is not neces- 
sary that we should distinctly remember any previous ex- 
perience like that expected, but only that we should have 
actually present some earlier member of a series that has 
become firmly associated through previous experiences." ^ 

^ Titchener, E. B., "Textbook of Psychology," 1910, pp. 378, 393-95. 
For eighteenth century view of Logic see, e.g., Hartley, D., "Ob- 
servations on Man," 1740, vol. I, pp. 359-60; Brown, Th., "Lectures 
on Philosophy of the Human Mind," edit. 1830, Lecture 49. 

' Ward, Jas., "Psychological Principles," p. 209. On the relation 
of habituation to the causal concept see also Russel, B., "Our Knowl- 
edge of the External World," 1914, pp. 222-23. 



156 A CRITIQUE OF ECONOMICS 

Besides, it is brought out by our experiences that whole 
correlations or groups of events may be predicted the 
more safely, the larger the percentage of parts perceived 
at the moment, and of course the more regular the recur- 
rence in toto up to date. Thus, if at a given moment I 
perceive A, B, and C out of an ensemble of ^, B, C, D, E, 
F, and G I shall be more confident that D, E, F, and G 
will also appear immediately afterwards, or are there 
without my stopping to itemize them, than if I perceived 
only A and B. The chances for error have proven greater 
in an expectation resting on a slender basis of facts than 
on a broad basis, and so our inference goes back once more 
to an induction from numbers. Whatever the tests urged 
by science, unguided inference follows this criterion and 
applies it to groups of events no less than to individuals. 

But though this explains — as far as such facts can — 
why we consider all men past and future to be mortal, it 
does not tell us why some one being should be classed 
among men, why Socrates in our syllogism should be 
spoken of as a man. It still remains to find out on what 
grounds we place him in the class, and how much evidence 
we have gathered to justify this step. 

Now, here again Hume led the way for all later investi- 
gators. He pointed out how largely we are governed by 
appearance, notably by differences and resemblances,® and 
how the principle of association operates so that a reap- 
pearance of a few similarities prompts us to expect the 

* For a recent opinion on modes of association see: Titchener, E. B., 
"Textbook of Psychology," p. 376; Warren, H. C, "Human Psy- 
chology," 1920, ch. 16; Calkins, M. W., "A First Book in Psychology," 
4. edit., pp. 117-24; Hunter, W. S., "General Psychology," 1919, p. 
287; Jodl, F., "Lehrbuch der Psychologic," 1916, vol. H, pp. 147-61. 
For explanation of association on physiological grounds see also 
Angell, J. R., "Introduction to Psychology," 1918, p. 165, and 
Muensterberg, H., "Psychology," 1914, pp. 111-19. 



INFERENCE 157 

others that on a previous occasion were coupled with them. 
Continually we are in touch with identities amid diversity. 
Though nothing may, on close inspection, be exactly like 
anything else, yet certain outstanding resemblances be- 
come noticeable, and these first catch our eye and lead 
to conclusions as to a relation between the old and the 
new. Though we may at times be proven wrong, in the 
long run there is reason for our habits. We note sequences 
of events, and are satisfied that upon certain links others 
will follow because they followed before. We equate un- 
equals, so far as our knowledge at the time goes. We 
go by circumstantial evidence and take risks in predicting 
the future from the past. It is not, therefore, that things 
discrete in time or space are completely identified, by 
an enumeration of all the characteristics known to us, 
but that we select, in the first place, a few from among a 
large number of attributes, and in the second place do 
not consider even all of these necessary for classing things 
or events or men, as in the premise of our syllogism. Most 
of our everyday reasoning revolves about such fragments 
of evidence. In nine out of ten cases it consists, to quote 
from W. James, of "the substitution of parts and their 
implications or consequences for wholes." ® "There are 
two great points in reasoning: First, an extracted char- 
acter is taken as equivalent to the entire datum from 
which it comes ; and secondly, the character thus taken 
suggests a certain consequence more obviously than it was 
suggested by the total datum as it originally came.'* ^^ 

« "Principles of Psychology," vol. II, p. 330, edit, of 1893. An 
early suggestion of the idea may be found in Locke's "Essay Con- 
cerning the Human Understanding," 1690, Book 4, ch. 2, §§ 1-2. 

"James, "Principles of Psychology," p. 340, and pp. 645^6. See 
also: Goddard, H, H., "Psychology of Normal and Abnormal," p. 



158 A CRITIQUE OF ECONOMICS 

Thus abstraction expedites comparison and evaluation. 
Qualities stand for like qualities plus others that are in- 
ferred, because experience has again and again shown them 
to be coexistents. The larger the percentage of common 
elements shared by two situations or groups of events, 
the greater the likelihood of their being completely alike. 
This is the lesson taught us in our life, and because of 
it inference leads to reliable predictions. ( Still, if it does 
prove false, that changes in no wise the principle of infer- 
ence itself.) Much of our thinking revolves about such 
considerations of similarities. It forms part of our 
musings and deliberations on practical affairs. "Reflec- 
tion," as has been stated by an American authority, "im- 
plies that something is believed in (or disbelieved in), 
not on its own direct account, but through something else 
which stands as witness, evidence, proof, voucher, war- 
rant ; that is, as ground of belief.'* ^^ Or to quote from an 
English critic of formal logic: "If analogical argument 
is not 'formally valid,* no argument can be 'formally valid.' 
For every argument, whether 'inductive* or 'deductive,' is 
really analogical." ^^ Ordinary acts of recognition con- 
sist of such inferences of identities as are not at the 
time established. We perceive more than our eyes see. 
We add to what is presented in the shape of physical 
stimuli. We recognize friends by a few signs, a rela- 
tively large number of other facts that we should need 
for identification being altogether ignored. Change the 

192; and Jodl, F., "Lehrb. der Psychologie," vol. II, pp. 348-52. 
For objections to this view see Bosanquet, B., "Logic," 1888, vol. 
II, p. 58. 

"Dewey, J., "How We Think," p. 8. 

"Schiller, F. C. S., "Formal Logic," p. 342; Pillsbury, W, B., 
"Psychology of Reasoning," pp. 230-37; and similarly, Joseph, 
H. W. B., "Introduction to Logic," ch. 24. 



INFERENCE 159 

clothes or the beard of the man, and you may fail to 
know him! Make sure of a few characteristics, and you 
have the whole man! Socrates was to his contemporaries 
a man because of a few outstanding traits out of the 
total that constitute the species. 

Relation of Induction to Deduction. — Bringing these 
principles of reasoning to bear upon our questions of 
economic methodology, we may well subscribe to the words : 
"The apparent paradox is that in order to have facts 
we must depend upon inference, while inference in turn 
rests upon facts." ^^ That is, the two main divisions of 
logic or inference are inseparable, though a distinction 
between them is absolutely necessary. Deduction and 
induction cannot be torn apart. Men have always recog- 
nized this fact.-^^^ In one sense, to be sure, the syllogism 
is the prototype of all reasoning, but as regards its prem- 
ises they force us to consider the principles of enumera- 
tion and substitution by analogy which may be employed 
without the kind of substitutions practiced by formal 
logic. Theoretically induction is not concerned with the 
laws of thought enunciated by the logician, nor need this 
latter interest himself in the origin of his propositions 
from which he draws a certain conclusion. But prac- 
tically all our reasoning combines enumeration with anal- 
ogy, and both with an explanation of the particular 
through a general, through a universal in the logical sense. 

Deduction in Science. — All this is a commonplace and 
calls for no further elucidations. We must however real- 
ize, in the second place, that precisely because of the 

"^ Bode, B. H., "An Outline of Logic," 1910, p. 198. 

"* For statements to this effect see: Wundt, W., "Logik," vol. II, 
Part I, § 1 ; Joseph, "Introduction to Logic," ch. 18 ; and Hunter, 
W. S., "General Psychology," p. 340. 



160 A CRITIQUE OF ECONOMICS 

basic concepts of formal deduction it cannot be a fit 
method for sciences dealing with facts. To call a given 
science deductive is to give rise to misconceptions, to chal- 
lenge criticism, unless we wish to contrast merely two 
types of scientific research, viz., experimentation or statis- 
tics on the one hand, and introspection or reflection on the 
other. It is admissible to call mathematics a discipline 
of deduction in a true sense of the word, because no em- 
pirical data are involved in its reasoning, because every- 
thing is derived from some premises agreed to before- 
hand. Definitions are postulates, and the so-called axioms 
have also proven to be postulates for the largest part. 
Thus the mathematician uses deduction pure and simple, 
relying upon reflection or upon experimental data only 
when they may prompt his intuitions. But all pursuits 
other than mathematics must choose their premises care- 
fully if their conclusions are to have any value. They 
cannot abstract a few facts from an actual world, and 
then erect upon them an imposing edifice of generalizations. 
Their reasoning may be good, but their starting-point 
will almost surely prove fatal. The more complex the 
data to be reckoned with, the less reliance may be placed 
upon a few premises however well selected, and the more 
clearly the science must be inductive. Especially must 
the social sciences for this reason be chiefly inductive. 
Not but that a deductive form of reasoning may be em- 
ployed throughout the work. Assuredly so ! But this kind 
of deduction in form will be united with induction, and 
with a periodic revision of premises used for any particu- 
lar argument. The logician is intent upon proving things 
— and everything may be proven with a judicious choice 
of assumptions ! But a scientist is most eager for veri- 



INFERENCE 161 

ficatlons, for establishing a truth squaring with facts, 
with evidence of the senses wherever it may be forthcoming. 
Thus the alleged deductive social sciences will not mean 
what writers have tempted us to believe. If economics, for 
instance, is a deductive science, then it will not be such 
because of its arguing by means of a syllogism — for that 
is true of all sciences — but because its laws or correla- 
tions are not derived from experimental or perhaps statis- 
tical tests. What in addition to this distinguishes eco- 
nomics from, say, physics, is a second question. But so 
much many be said a propos of deduction. 

Logical Validity of Induction. — Finally, as to the old 
problem of the validity of induction as a means for dis- 
covering verities, we must agree with the traditional refuge 
in a law of the uniformity of nature. There is no doubt 
of the logical need of some such assumption if enumera- 
tion with or without substitution by analogy is to yield 
general conclusions. A mechanistic view of the cosmos 
is probably the most suitable for the purposes of the 
argument from induction. We must grant at the outset 
that there is fixity and finiteness in nature. We must 
formulate a principle of necessary connection regardless 
of the irregularities presented to our senses in the inter- 
relations of perceptual data. We must say: "There 
are such invariable relations between different events at 
the same time, or at different times, that given the state 
of the whole universe throughout any finite time, how- 
ever short, every previous and subsequent event can the- 
oretically be determined as a function of the given events 
during that time." ^^ Or we may take a less dogmatic 
attitude by siding with the writer of the following : "The 

"Russell, B., "Scientific Method in Philosophy," p. 221. 



162 A CRITIQUE OF ECONOMICS 

law of the Uniformity of Nature appears to me to amount 
to an assertion that an analogy which is perfect, except 
that mere differences of position in time and place are 
treated as irrelevant, is a valid basis for a generalization, 
two total causes being regarded as the same if they dif- 
fer only in their position in time or space." ^^ In the end, 
however, we shall be driven to a still more skeptical pose, 
preparing thereby a basis of comparison between experi- 
mental and statistical induction, although it may not sug- 
gest this at once. Namely we must grant in all candor 
that "unless inductive conclusions [of any kind!] be ex- 
pressed in terms of probability, all inductive inference 
involves a formal fallacy," ^^ to wit a petitio principii. 
*'An inductive argument affirms, not that a certain matter 
of fact is so, but that relative to certain evidence there 
is a probability in its favor. The validity of the induc- 
tion, relative to the original evidence, is not upset, there- 
fore, if as a fact the truth turns out to be otherwise." ^"^ 
Inference as such may be good irrespective of future 
proofs to the contrary, but we should not forget that 
*'while it is often convenient to speak of propositions as 
certain or probable, this expresses strictly a relationship 
in which they stand to a corpus of knowledge, actual or 
hypothetical, and not a characteristic of the propositions 
in themselves." ^^ Such is the lesson taught us by the 
whole of inference. Barring a total disregard of empirical 
data we are always liable to be in error, no matter how 

"Keynes, J. M., "Treatise on Probability," 1921, pp. 226, 258, 264; 
Joseph, "Logic," ch. 19; Mill, J. S., "Logic," Book III, eh. 3, which 
contains a much quoted view on the empirical origin of the idea of 
a Uniformity of Nature. 

"Broad, C. D., in Mind, 1918, p. 26. See also ibidem, January, 
1920. 

"Keynes, "Treatise on Probability," p. 221. 

"^ Ibidem, p. 407. 



INFERENCE 163 

well we reason. And as for differentiating sharply 
between real truths and invalid inductions in science, it is 
impossible to justify it in the light of the logic of infer- 
ence itself. 



CHAPTER SEVEN 
LAW AND CAUSATION 

Questions. — The fruit of induction is a generalization 
known as a law of nature. It is for the sake of reducing 
the multiplicity of data passing before his eyes to a 
relatively few fundamental laws that a scientist goes to so 
much trouble. Science has not accomplished all if it does 
not yield laws, if it does not subsume one set of laws under 
another of a still wider prevalence or of a more general 
form. Hence investigators in all fields may, to a large 
extent, be judged by what kind of laws they bring to view, 
this criterion being as valid for social as for natural sci- 
ences. But it will appear, as we go on, that there are 
laws of two very different types, namely, laws in the nar- 
row sense and laws more loosely constructed and pass- 
ing by the name of correlation. The question thus is: 
Should the latter be classed with the former .f* Is there 
a difference between them so great that they are virtually 
incomparable? Is it true that causation is part of a law 
of nature, but not of correlations when found in non- 
physical data.'' Or can we in some way establish a 
bridge between law and correlation, eliminating the causal 
aspect or robbing it of its portentous significance such as 
tradition has assigned to it.'' In the answer to these ques- 
tions will lie a not inconsiderable part of our opinion about 
the scope and method, the character and possible goal 
of economics. 

164 



LAW AND CAUSATION 165 

What is a Law of Nature. — Now, first of all, a law of 
nature is a statement of a regular recurrence of sequences 
or coexistences, or is this regularity itself. A sequence 
consists of things or events happening in succession within 
some time-unit, whatever it turn out to be on measuring it. 
A coexistence is a group of things or events existing to- 
gether for definite or indefinite periods. The frequency 
with which these uniformities occur or recur does not mat- 
ter. The only decisive trait is the absolute regularity of 
recurrence, as inferred inductively according to the canons 
of reasoning. Coexistences may or may not be regarded 
as a real class of laws. It depends, and authorities have 
differed on the subject. But such bundles as the quali- 
ties of the chemical element gold, or the items making 
up a living organism at a certain moment of time, en- 
during perhaps for a long span of time, such simul- 
taneities have been called coexistence-laws, with and 
without due consideration of the causal values in- 
volved. 

In the second place, a law of nature comprises regulari- 
ties of not only individual things or events, A invariably 
occurring before or after B, but more especially regu- 
larities of sets of events such that A, B, C is linked in- 
separably with Z>, E, F. It is this interdependence of a 
number of distinguishable events that is most charac- 
teristic of our scientific laws. We are nearly always 
dealing with bundles of events, and not simply with indi- 
vidual units. However, it is a commonplace that science 
is interested in relations rather than in things, and that 
these laws of nature have in most cases a quantitative 
meaning as well as a qualitative one. That is to say, we 
not only establish a uniformity of data which because of 



166 A CRITIQUE OF ECONOMICS 

our senses must assume a quality aspect, but we are even 
more intent upon finding the relative amounts of these 
qualities entering into a uniformity. To say that a cer- 
tain number of things, e. g., makes up a thunderstorm and 
that the law consists of the regiilar recurrence of these 
magnitudes, is one thing; but to ascertain the quantities 
of each element enumerated is still another thing. Both 
of these relations, or only one of them, may be essential 
to our idea of the law. Yet the fact of our seeking 
precise quantities is so familiar to all, that science is not 
inappropriately called the study and measurement of 
relations of magnitude. 

The first law of electro-statics which says that "any two 
different substances brought into contact become electri- 
fied," treats of a correlation of events as such, meaning of 
things or qualities ; and so notably also many laws of co- 
existence. But for the most part science is a treasure of 
quantitative relations with regard to such events qualita- 
tively sensed. It seeks to measure these quantities exactly, 
to note the changes going on in one magnitude or another, 
in one group as against another. The quantitative rela- 
tive changes are watched and recorded. The proportions 
of relative rates of change are fitted into a temporal and 
spatial order. Thus a law of nature becomes a statement 
of magnitudes fully as much as one of things or events. 
Thus chemists recognize combinations of elements previ- 
ously defined, emphasizing phases of metamorphosis and 
measuring precisely the proportions involved in a com- 
pound. The law of combining weights for instance states 
that "in every compound substance the proportion by 
weight of each element may be expressed by a fixed num- 
ber, a different one for each element, or by a multiple of 



LAW AND CAUSATION 167 

this number by some integer." Boyle's law of gases deals 
with relative amounts of gas and temperature, the con- 
stants for the changes being the burden of the theorem. 
Indeed, Boyle's law is this regular recurrence of variations 
put into exact quantitative terms for temperature, pres- 
sure, and the volume of a gas, these observed regular 
changes in the past serving as the basis of a prediction 
for the future. 

In the third place, natural science tries to reduce its 
events to the greatest possible degree of simplicity. At 
last analysis the things or qualities of science are not 
really qualities from the common-sense standpoint, but 
they become qualities and are connected with perceivable 
common-sense qualities because of the manner in which all 
our knowledge must be garnered. To science the irreduci- 
bles, are, — ^let us say — atoms or electrons, or mere lines 
of motion or force; and so on. It is on account of this 
reduction of phenomena experimentally treated to non- 
descript, colorless, indivisible units that science is able 
to draw up formulae of such definiteness and sweep. But 
if we look at these formulae in our texts and treatises we 
shall nevertheless find that they presuppose the reality of 
objects constructed out of these units. That is, the laws 
involve a study of things precisely as known to our ten 
senses. What the reduction to last units does is mainly 
to point out similarities which a superficial examination 
would not reveal. We are told that " a body immersed in 
a fluid is buoyed up by a force equal to the weight of the 
fluid displaced," and this is a reference to common-sense 
facts, as well as to a relation purely scientific. We read 
again : "The resistance to the flow of an electric current 
varies directly as the length and inversely as the area 



168 A CRITIQUE OF ECONOMICS 

of cross section of the conductor." That also embraces 
two kinds of things or events or units taken from the 
world of percepts and that of concepts respectively. 
Heat, light, and motion in this way become identical facts 
for science, although to the man on the street they repre- 
sent quite different items. 

But let us put the matter yet differently. 

The units of natural science comprise in most, though 
not in all, cases a rather limited number of tilings or kinds 
of events. These events become antecedents and conse- 
quents in the endless, ever recurring successions that con- 
stitute the warp and woof of our experience, but are skill- 
fully culled out from the totality of relations by our 
professional student. We find procedures adopted by 
him, and distinctions made, that have no place what- 
ever in the thinking of the untrained mind. The common- 
sense attitude is unsuspecting and optimistic, while for 
the scientist many difficulties intervene that may obstruct 
his view. A few crudely gauged unities exist for the for- 
mer; many nicely weighed unities for the latter. If we 
take for instance such a familiar happening as a thun- 
derstorm, and ask what divides science from common 
sense, we shall get our answer in two types of analysis of 
one and the same phenomenon. The average observer will 
point to wind, rain, clouds, lightning, and thunder as the 
salient features in the process. These things are most 
readily sensed by him, and so he enumerates them as the 
ingredients of a storm, declaring them to be its explana- 
tion. Other items, to be sure, like dust, flood, fire, etc., 
may be mentioned on second thought, but they will prob- 
ably be granted not to belong really to the subject under 
investigation. 



LAW AND CAUSATION 169 

Now by contrast, how does science acquit Itself of Its 
task in studying this sa,me set of events? 

It becomes evident at once that factors will loom up 
which we would not offhand think of; that units are at 
stake entirely distinct from those perceivable entities 
known to common sense; and that order in time, or sub- 
sumption in a classificatory series, is insisted upon regard- 
less of impressions received by our retina or tympanum. 
The whole phenomenon, which we shall here call an event- 
complex to distinguish it from the last, Irreducible units 
of science. Is broken up Into four principal divisions ; or 
at any rate we should find such a division convenient if 
we were to trace all Its links from start to finish. But 
suppose we content ourselves with only one division, since 
otherwise we should have to go too far afield. Suppose we 
try to learn from the physicist's account of the wind alone 
what Interests him most, and why his units for qualitative 
and quantitative comparison differ In essence from those 
of an untrained man. 

We observe then that the scientist tells us of the weight 
of the atmosphere which is a result of the mutual attrac- 
tion between the sun and the earth, deriving his notion of 
heaviness from this attraction and the fact of a mass of 
some substance. Science would also mention either as a 
medium in which light travels, as well as the radiation of 
light from the sun to us. These rays, we should further 
be Informed, are partly stored up by the earth, and partly 
reflected back, heating the superficies of the earth and the 
atmosphere nearest to it up to a certain altitude. Hence 
there would follow greater molecular motion of the air, 
this latter expanding and thereby reducing Its mass per 
unit volume. 



170 A CRITIQUE OF ECONOMICS 

Being made lighter in this fashion the air will rise 
according to a principle of buoyancy, while the heavier 
layers sink to the ground. A series of currents are thus 
set up conformable to laws of convection, the currents 
growing the stronger the more marked the difference in 
temperature for the diverse strata of the atmosphere. Yet 
the air need not rise vertically ; for a number of inter- 
ferences are usually operating to which scientists pay some 
attention. The rotation of the earth about its axis for 
instance would play its part. Irregularities in the con- 
tour of the land, and different rates of absorption and 
radiation of heat for land and water bodies would likewise 
prevent a straight upward movement of air streams. And 
so other factors still. Only after due allowance for all 
of these elements could the wind beating on us during 
an electric storm be said to have been explained in a true 
scientific sense. The qualitative analysis would be ap- 
proximately as indicated, and a quantitative would have 
to be made if the storm were to be accounted for per par- 
ticular area or stretch of time to distinguish it from simi- 
lar affairs in the past. But this last quantitative analysis 
would indeed be out of the question. 

What is more, and in the fourth place, it is plain that 
the units of science are without exception intertwined 
with other events or units that do not for the moment 
form a part of our survey. All laws of nature are ab- 
stractions in that they refer to relations lifted carefully 
out of a larger whole. We may be mindful of the en- 
veloping phenomena, but call them conditions at the time. 
We say that circumstances alter cases and that condi- 
tions are modifying factors affecting the qualities or 
magnitudes involved in our law. These accompani- 



LAW AND CAUSATION 171 

ments therefore, since they invariably surround the re- 
lations known as laws of nature, must be studied when- 
ever a practical purpose guides us, whenever a special 
instance is to be "explained" in the light of broad, under- 
lying principles which themselves are laws of nature. The 
conditions are perceptual adjuncts of a conceptual play, 
as it were. They are in their turn the parts of laws which 
we may or may not know. They cannot do otherwise than 
obey laws, for such is our understanding of the cosmos, 
such is the trend of our thinking. It may be impossible for 
us to measure accurately the effect of these conditioning 
elements, though as a rule natural scientists can relate 
them quantitatively as well as qualitatively to their sub- 
ject under review. We have amassed a vast fund of 
just that class of facts treated as conditioning phe- 
nomena. But in meteorology, e. g., or in biology, or even 
in the throwing of dice where the turn-up of pips might 
be studied with a view to a law, our conditions defy nice 
calculation. We simply point out the fact that the 
conditions do not invalidate our reasoning, or the law pro- 
claimed. We make allowances for such special cases and 
try to show why these members must be part of another 
law, or may some day prove to be one. We state laws 
of sound, for example, and consider the properties of 
the atmosphere in which it travels before explaining one 
particular rate of transmission. We learn to realize that 
water boils at different temperatures at different eleva- 
tions ; why freezing points may vary ; why water will 
rise in a pump apparently contrary to gravity ; why a 
feather will not fall as fast as a stone ; and so on. Also, 
we give different names to one and the same law or set of 
facts incorporated in it, according as other events belong- 



172 A CRITIQUE OF ECONOMICS 

ing to other laws accompany it. Thus we call rust, 
metabolism, and fire examples of combustion because a 
union of oxygen with some other substance is involved in 
all three, and because this is the definition of combustion 
that has most recommended itself to us on scientific prin- 
ciples. Or we call a set of happenings an electric cur- 
rent in one case, and northern lights in another, or light- 
ning in a third. And of course we may use our knowl- 
edge of these modifying elements industrially or otherwise, 
adding and subtracting till our artificial product seems 
to have little in common with the sequences or coexistences 
found in a state of nature. Thus we may make flashless or 
noiseless powders, produce light without heat-giving prop- 
erties, and so on. The qualifying circumstances of a law 
of nature are therefore no disadvantage, nor could we 
imagine them away, when isolating our set of law-elements. 
What we must remember only is the consistency of these 
conditions with our basic concept of a law of nature. 
Rightly understood there are no exceptions to our law. 
Science so decrees it. "There are no breaches of scientific 
law ; or of a law of nature. If events are observed which 
do not conform to what we have hitherto called a law, 
we conclude, not that the law is broken, but that we were 
ignorant of the law." ^ 

Subjective Basis of Science. — From this follows, in the 
fifth place, that a law of science is after all a rather sub- 
jective affair ; that it has a human no less than a physical 
side, and that we should never lose sight of this dual na- 
ture of our understanding if we wish to bring the several 
fields of inquiry into relation with one another. 

^Joseph, H. W. B., "Introduction to Logic," 1916, p. 2. For a 
modified view see Whitehead, A. N., "Inquiry Concerning Principles 
of Natural Knowledge," p. 87. 



LAW AND CAUSATION 173 

Even scientists themselves have increasingly admitted 
the conceptual basis of their data perceptually derived, 
or perhaps rather: They have learned to make the con- 
cepts of a creative mind a terminus as well as the start- 
ing-point of their researches in sensations. Realism, to be 
sure, is the first postulate of all science. A scientist can- 
not afford to doubt the reality of the world about him, to 
question whether he exists or not, whether he may know 
things or not, whether what seems to be space, time, sub- 
stance and change is such or not. To a large degree sci- 
ence is necessarily naive, sharing this characteristic with 
the bulk of practical-minded people. Realism is a pre- 
requisite to men of science at the outset. And yet they 
may feel free to dwell on their limitations as knowers, 
falling in line with philosophers who have at all times 
stressed the problem of metaphysics and epistemology. 
Thus the nineteenth century gave rise to a large literature 
deprecating the efforts of science. Laws of nature were 
viewed as products of a mind operating independently, to 
a certain extent, of the material realm around it. Phe- 
nomenalism made headway and rendered useful services. 
A skeptical attitude was fostered and made the grounds 
of a methodology, mathematics, and theory of knowledge 
that is metaphysical in spite of being championed by 
eminent scientists. Thus we might quote as follows : 
"Law in the scientific sense is essentially a product of the 
human mind, and has no meaning apart from men." ^ 
Science is "an uninterrupted, but progressive series of 
mental constructions, which series gives us an approximate 
idea (representation) of the interconnected system of 
Reality." ^ It would not be absurd "to attribute the whole 

^ Pearson, K., "Grammar of Science," edit, of 1900, pp. 87 and 113. 
^Enriques, F., "Problems of Science" (transl. by K. Royce, 1914), 
Bart: "Problems of Logic," § 11 and § 19. 



174 A CRITIQUE OF ECONOMICS 

responsibility for the laws of mechanics and of gravita- 
tion to the mind," denying altogether that "the external 
world has any share in them." ^ The metaphysical creeds 
back of these three statements could not be called the 
same, but the spirit of phenomenalism is quite apparent. 

However, it is no more necessary to espouse phenomen- 
alism because we accept dualism in metaphysics or episte- 
mology, than there is ground for one's being either a Kan- 
tian transcendentalist or a monistic materialist. These 
questions of choice, and points of refinements brought up 
by the professional speculators need not detain us. But 
plainly a problem of valuation exists. There is reason 
for a committal on the query whether law, respectively 
causation, are undoubted facts in the outside world, or 
purely our invention, or perhaps a third something. 
And there is likewise reason, from the viewpoint of the 
economist, for taking this last suggested middle road, for 
siding with the critical realists rather than with out-and- 
out idealists or uncompromising monists. 

What seems necessary first is a resort to transcend- 
ence, if knowledge (including scientific data) is to become 
explicable without straining our demand for logic ; and 
what again seems evident is the difference, not between 
a Real and a Knowable as Kant had insisted upon it, but 
between an object and its content for us, or between mag- 
nitudes of data and their relations. Granting that knower 
and the known are two facts, and granting also that an 
element of relativity enters into all our understanding of 
events, we are still able to harmonize the largest possible 
variety of data and problems in the one belief that the 

* Eddington, A. S., in "Mind," 1920, p. 155, See also Bain, A., 
"Logic," 1874, p. 353. 



LAW AND CAUSATION 175 

objective minimum and our subjective maximum of ex- 
perience are fused by a process which presupposes trans- 
cendence. More than sensation and science is at stake; 
but in them the raw-materials are given out of which we 
build our castles and creeds. If we may accept the words 
of a recent work on this subject, we believe "that 'physical* 
things exist independently of being known ; that they may 
be our objects, but that they are never our mental con- 
tent; that they differ in some respects from the quality- 
groups of our perception (e. g., in not possessing the 
secondary qualities which we find in our percepts) ; but 
that they stand in such causal relation to our percepts 
that it is possible for science to investigate some of these 
relations and some of the relations between the physical 
things, and thus to gain trustworthy knowledge concern- 
ing the laws of their actions." ^ 

It is with our knowing process and our valuations, in 
other words, as with the act of perception that psycholo- 
gists have dwelt on so often, and most illuminatingly. We 
see more and less than is presented to our eyes, and we see 
different things according to our angle of vision, antece- 
dents of thought, etc. In the blend of points, lines and 
shades, for instance, which a book on psychology calls our 
attention to, we may see either a duck's bill or a rabbit's 
head, according to focus and predisposition. Both pic- 
tures may be read into, or out of, the data presented, but 
it is hardly possible to predict which one we shall first 
think of. There are principles that decide our interpre- 
tation, and it is not difficult to explain why and how both 

* "Essays in Critical Realism" by Drake, D., Lovej oy, A. O., Pratt, 
P., Rogers, A. *K., Santayana, G., Sellars, R. W., and Strong, C. A., 
1920. See also essay by Pratt, p. 109, and Sellars, R. W., in "Mind," 
1919, pp. 410, and 407-26. 



176 A CRITIQUE OF ECONOMICS 

readings are brought about ; but there is no sure way of 
excluding entirely either one of them. 

Thus life itself is a maze of potential values, of possi- 
bilities that alternate or succeed each other or are com- 
bined for some reason. A vast array of puzzle pictures, in 
one sense, is this Manifold ! A meshwork so finely wrought 
and intricate, so susceptible to change, and so replete 
with promises and perplexities, that no one generation of 
students may hope to understand all, or to speak the 
truth for times unending. Or to state the matter more 
specifically, and in terms of the pliilosopher : "The sense 
of the outer existence of these essences [of reality] is in- 
distinguishably fused with their appearance. But these 
two aspects of perception, the appearance of the char- 
acter-complex and the (implicit) affirmation of its outer 
existence, must m reflection be distinguished." ^ More 
than that, "a law of nature — is not a uniformity which 
must be obeyed by all objects, but merely a uniformity 
which is as a matter of fact obeyed by those objects which 
have come beneath our observation." ^ "Before a rigorous 
logical scrutiny the Reign of Law will prove to be an un- 
verified hypothesis . . . , and the certainty of our scien- 
tific inferences to a great extent a delusion."^ "A 'law' 
is not an absolute self-evident certainty to be imposed on 
reality by main force. It is a flexible formula for applica- 
tion to cases, and gets its real meaning from the cases to 

which it has been successfully applied." ^ 

"Ibidem, essay by Drake, D., pp. 20 and 24. See also Royce, J., 
"The World and the Individual," 2. Series of Lectures, p. 159. 
Also: Windelband, W., "Logic, in Encyclopedia of Philosophical 
Sciences," 1913, vol. I, p. 47. 

' Jevons, W. S., "Principles of Science," 3. edit., pp. 737-38. 

* Ibidem, Preface. 

"Schiller, F. C. S., "Formal Logic," p. 320. Similarly, Mach, E., 
"Erkenntnis und Irrtum," p. 449. 



LAW AND CAUSATION 177 

Correlations. — Estimates like these should in them- 
selves warn us not to be too dogmatic in distinguishing 
between science and common sense, or on the other hand 
between the laws of natural science and those other for- 
mulae known as statistical correlations. We may say of 
laws in the narrow sense that they are (a) built up of 
what for the time are proven to be irreducible units — 
perhaps literally "atoms" - — , (b) that these sets of 
units are properly detached from our perceptual sphere of 
experience, (c) that the conditioning factors are as a 
rule measurable and logically parts of other laws, and 
again (d) that these groups of events recur with absolute 
fidelity, constituting an interdependence that knows no 
exception. We may define our law of nature in this man- 
ner, but this still leaves a basis for comparing it with 
correlations of a more flexible sort. 

But let us see what exactly are the differences and re- 
semblances. 

We find, to begin with, that there are classes of 
regularities not nearly as perfect as those of physics 
or chemistry, and yet valid for a given region or period 
of time. Even in natural science correlations are some- 
times the best thing that research can unearth. Even 
in biology and for the meteorologist functional relations 
of an indeterminate number of variables play a prominent 
role. But as soon as we pass from the lower forms of 
life to the higher, and especially as we enter upon the 
domain of human happenings, the intricacy of relations 
becomes proverbial. What characterizes statistical rela- 
tions therefore is the large and more or less indefinite 
number of units comprised in them, the variability of our 
qualities or events as well as of their respective magni- 



178 A CRITIQUE OF ECONOMICS 

tudes. We are studying event-complexes rather than ulti- 
mate units of matter or force. That is, we bring into 
quantitative relation such events as are directly presented 
to our senses, or as are supposed by natural science to 
be built up of smaller units of a homogeneous physical 
sort. Not always of course, but predominantly this is 
a fact. With life and growth-force comes complexity, in- 
stability, and an intermingling of elements that physicists 
and chemists know nothing of. The mechanical equivalent 
in one sense still rules, but for purposes of generalization 
it is dead or insignificant. We must regard our data 
as elements in a propositional function, to use the terms 
of the mathematician. We must accept units for meas- 
urement which are scattered over large areas, over long 
stretches of time, or whose composition is of vital entities, 
of cells and whole organism or their parts, of groups of 
beings studied in their relation with physical or psychic 
facts. Social sciences most obviously are affected by this 
peculiarity of the units from which the event-complexes are 
constructed, and whose several interdependencies numer- 
ically expressed are the essence of a scientific correla- 
tion. It is undoubtedly true that any change in the 
physical world may bear upon the so-called psychic facts 
under investigation. An extermination of noxious plants 
or insects, alterations in the income of individuals, or in 
methods of production and exchange, or in types of asso- 
ciation of men, or in the uses of things, and in personal 
valuation and institutional policy — these and other 
changes mean a realignment of elements in every correla- 
tion we may aim at or have already discovered. In other 
words, owing to the dynamic factor known as vital force 
or bathmism or human will or animal instinct or helio- 



LAW AND CAUSATION 179 

tropism or metabolism, etc., the social scientist deals with 
interaction between physical and cultural or social en- 
vironments, as well as with a play between physics and 
psychics (supposing we grant this line of division at all). 
For this reason a marked diiference between law and 
correlation exists. The first has a small and definite 
number of units conceived as irreducibles. Its qualitative 
and quantitative relations may be established by approved 
methods, and the conditioning elements usually be sub- 
jected to a like exact measurement. The second group 
however, viz., our correlations in bio-metrics or physiology 
or social science, rest on highly complex units, on what 
the physical scientist would call compounds. Variability 
follows from the complexity of the units, while the inter- 
relation between physical and non-physical data accentu- 
ates the difiiculty of finding a true generalization. Again 
we may start where we please, and wherever a marked 
quantitative negative or positive correspondence appears, 
there the grounds for induction are provided. Thus I 
may correlate the weather with passenger-receipts or with 
employment facts, or with suicides or acre-yields or with 
the efficiency of laborers in a mill. All this is logically 
tenable and may lead to useful information. If natural 
science has a free field for examination, how much more 
so the biologist or social philosopher ! But both law and 
correlation are derived from units taken for the time as 
irreducibles and realities of the outside world. We have a 
correlation in both cases, though the unfailing regularity 
of a law, being demonstrable by standard devices, exceeds 
greatly the proximate regularity of correlations. There 
is qualitative as well as quantitative correlation, absolute 
facts being connected in time and space. There are 



180 A CRITIQUE OF ECONOMICS 

relative rates of change, and constants of such interde- 
pendent magnitudes. And once more, while the con- 
ditioning factors are rarely measurable in correlations, 
differing in this respect from the accompaniments of a 
law of nature, yet the mere circumstance of a condi- 
tional environment common to both is equally noteworthy. 
For it means that correlation no less than law is an ab- 
stract. It means that the subjective element remains in 
both, though in different strengths. It means that there 
is no more reason for denying the uniformity of condi- 
tioning phenomena in social science than we are likely to 
deny it to the perceptual events cradling, as it were, the 
laws of nature. 

If a further distinction therefore is to be made between 
law and correlation, it cannot hinge on their inward na- 
ture, but only on the units of events and time within which 
each set of events reaches a regularity of recurrence. The 
choice of these temporal and spatial units is verily signifi- 
cant ; for absolute time and space may be considered 
irrelevant for our problem. What counts most is the cir- 
cumstance that our laws and correlations are hedged in 
by finite amounts of these infinities. We deliberately re- 
late our correlates of physical or other complexes to such 
doses of time and space. One becomes a function of the 
other. We take the reality of time and space for granted 
and then snip off fractions to serve as a vehicle for our 
quantitative expressions. Thus, although the outer limits 
of time and space for the possible laws of an organism 
would be its life and the earth, the experimental time and 
space units for natural scientists are relatively small. 
But in the social sciences both time and space units may 
be very large, and usually are rather poorly defined, so 



LAW AND CAUSATION 181 

that the diiference between sequences and co-existences 
may scarcely be ascertainable. 

What is Causation? — Hence a problem also arises as 
to the place of temporal or spatial units in a causal 
analysis of both physical laws and statistical correla- 
tions, a matter that will lead us to inquire into the true 
relation of causality to law, respectively correlation. We 
may ask: Are law and causation different entities, or 
not? Is cause-effect a part of law, but not of correlation .? 
Or should we decide differently.? 

It will do no harm to begin with a few representative 
quotations from works which are notable for their mas- 
terly treatment of this vexing question. We shall then 
appreciate at once the identity of law and causation as 
seen from one particular angle. Thus we read with in- 
terest statements like these: "When we say that every 
effect has a cause, we mean that every event is connected 
with something in a way that might make somebody call 
that the cause of it." ^^ "There is no particular dif- 
ference between knowledge of causes and our general 
knowledge of the combinations, or succession of combina- 
tions, in which the phenomena of nature are presented to 
us, or found to occur in experimental inquiry." ^^ "A 
cause is not to be distinguished from the group of positive 
or negative conditions which, with more or less probability, 
precede an event." ^^ "Things are not either independent 

^° Clifford, W. K., "On Aims and Instruments of Scientific 
Thought," 1872; Becher, E., "Naturphilosophie," 1914, p. 148. 

" Jevons, W. S., "Principles of Science," Book II, § 1. 

^Ibidem. See also Gibson, W. R. B., "The Problem of Logic," 
1908, p. 372. For an early statement see Reid, Th., "Inquiry into 
the Human Mind on Principles of Common Sense," 1764 (Sneath, 
E. H., editor, publ. by Holt, H., 1892), p. 332. A recent suggestive 
criticism of the popular view of causation is given by Campbell, 
N. R., "Physics, The Elements," 1920, pp. 57-70. 



182 A CRITIQUE OF ECONOMICS 

or causative. All classes of phenomena are linked to- 
gether, and the problem in each case is how close is the 
degree of association." ^^ "The origin of the concept 
of causation is now manifest. It is that of the part, ex- 
plaining the whole — or, avoiding this untechnical use of 
*part' and 'whole,' — it is that of some explaining all" ^^ 
"It is involved in the causal relation that if two things are 
really cause and effect, the one never exists without the 
other." 1^ 

In other words, to ask what is the cause of this, what 
is the reason for it? Why did it happen.'* is to ask sim- 
ply: What else goes with it or follows or precedes.'' 
What is it that regularly or ordinarily, so far as our ex- 
perience tells, forms part of the chain of events of which 
the event known as effect is also a part.'' This is the 
real meaning of our inquiry about the why and wherefore. 
We want things or happenings connected in a series which 
regularly recurs either exactly as witnessed by our senses, 
or in the form which science by degrees sifts out as the 
quintessence of a law of nature. But let us not forget 
that the events must have a name or must be specific, so 
we may recognize them, setting them aside from other 
events. If we were to assert that causation means merely 
a succession of facts, without attempting to itemize their 
characteristics, we should not have ventured very much. 
It is not any x followed by any 7/ that engages our at- 

*' Pearson, K., "Grammar of Science," edit, of 1911, vol. I, p. 166, 
and pp. 157, 173. 

^* Whitehead, A. N., "Inquiry Concerning Principles of Natural 
Knowledge," p. 187. 

•^Joseph, "Logic," p. 429. His classification of causes is given on 
pages 459-62. See also Schiller's excellent tabulation, "Formal Logic," 
ch. 20, § 7. For a dynamic view of causes as variables see Russell, 
B. "The Analysis of Mind," 1921, pp. 93-98. On plurality see 
Joseph, "Logic," ch. 22, and Venn, J., "Logic," p. 62. 



LAW AND CAUSATION 183 

tention, but some distinguishable known a and h, or specific 
sets of events such as abc as antecedents, and def as 
consequents. Everything happens in bundles or groups, 
not as a line of individual events separated by long inter- 
vals of time. Specific causation therefore is our topic, 
not an attenuated theorem of Uniformity of Nature such 
as logicians must postulate when they talk of induction 
and the roots of human knowledge. 

Now, of this sort of causality a huge literature has 
treated for many centuries, and yet some problems have 
remained unsolved or in any case seem still susceptible of 
more than one solution. 

To begin with there is, e. g., the old query whether co- 
existences can be causal or not. The majority of logicians 
has counseled the rejection of a causal status for co- 
existences. John Stuart Mill's attitude has been fairly 
typical in this matter as in some others. He assures us : 
"The law of causation — is but the familiar truth that in- 
variability of succession is found by observation to obtain 
between every fact in nature and some other fact which 
has preceded it . . ." ^^ "There are certainly cases in 
which the effect follows without any interval perceptible 
to our faculties," but "whether the cause and its effect be 
necessarily successive or not, causation is still the law of 
the succession of phenomena." ^'^ Such was the great 
Englishman's view, and one suspects that his training in 
an older school of metaphysicians was partly responsible 
for his verdict. For if we may believe the writers quoted 
a while ago, or if we proceed to examine at close range the 
structure, the anatomy so to say, of law and correlation, 

*«Book III, ch. 5, §2. 
" Ibidem, § 6. 



184 A CRITIQUE OF ECONOMICS 

we shall not be inclined to predicate of sequences more 
than of coexistences. But of this a little later. 

Another point about causality, as students are well 
aware, is the rather arbitrary fashion in which we single 
out certain events as causes (respectively effects), with- 
out realizing it at the time. The common-sense man errs 
here as he does on other occasions. He sees perchance a 
leaf dropping from a tree, and on being questioned as 
to the cause, says : The wind, of course. It is clear to 
him that no other explanation is as plausible. He takes 
many things for granted, such as the rotting of the fiber 
that for long months fastened the leaf securely to the 
twig, or the law of gravity, or the angle at which the leaf 
was struck by the breeze, or the condition of the tissue in 
the leaf which made it wilt and curl. These sorts of 
facts do not interest him. He overlooks them in making 
his diagnosis and does well in doing so. But note that by 
this route an end result becomes an eifect to a cause which 
itself is only one of a variety of elements to be con- 
sidered by us, were we to be scientific, and not practical. 
Motion and action, for that matter, usually arouse our 
attention and prompt us to pronounce them causes. Or 
we assume a certain set of facts because we become used 
to them, picture them, as constants, and then pounce on 
a detail as the variable or cause. Just as primitive folk as- 
sociate causes with gods and designing human beings, so 
movement appears as an agent setting off effects at a 
given time. This is one mistake that trained minds will 
not be long in disclosing to the unsophisticated. But 
it is not the only one, nor perhaps the worst. 

For equally indefensible is the belief that there may be 
a plurality of causes, and yet not one of effects — a notion 



LAW AND CAUSATION 185 

that runs like a continuous thread through a considerable 
literature in logic and philosophy. But why should we 
insist upon such a distinction, once we have studied laws 
as bundles of units of a more or less elemental character? 
Plainly, if it is true that many causes of death exist, 
or that in this sense events do not occur in a reversible 
order, so also should we understand that any one cause 
has many effects, if the effects are analyzed as minutely as 
our alleged causes. That is, if we reduce effects to as 
small units as our causes, then we have either a perfect 
reciprocity of causation, or we have none at all, because 
as perceptual events causes and effects are never alto- 
gether the same, however similar their recurrences may 
seem to be. Thus to argue for many causes of one con- 
sequent called death is to forget that death is an event- 
complex built out of scores and hundreds of smaller units 
of events, each one of which according to the mechanics 
of natural science must have just one correspondent in 
the group of antecedents styled the causes. Not to argue 
for the variety of causes in such an article as poison, let 
us be mindful of the almost infinite number of conse- 
quents connected with the swallowing of it. Why make 
death one event, and then link it with a host of different 
events leading up to it, such as disease or accident or a 
paralytic stroke or the taking of poison or a deliberate 
shot from an assassin's gun? It is manifest that more 
units of things and more magnitudes of our events in the 
complex are involved than a first thought would suggest. 
We have actually a congeries of laws, all operating in 
the act called the dying of a person, but appearing to us 
as conditions which are mainly slighted or not noticed 
at all. On the one hand, then, conditioning factors may 



186 A CRITIQUE OF ECONOMICS 

be pointed out as causes of a change in a select chain of 
events, while on the other hand they may be ignored en- 
tirely, our interest centering in but a single culmination 
observed as surcease of life, that is of motion or thinking 
or feeling or breathing, etc. 

But this flaw in the argument for a plurality of causes 
in contradistinction from a singleness of effect should aid 
us in gauging again the subjective aspects of causation, 
as well as the possibility of calling the correlates in a law 
of nature either cause or effect. The hypothetical, arti- 
ficial nature of a causal imputation is indeed undeniable. 
"We must always assume a considerable amount of pre- 
liminary information as to the nature and limits of the 
field over which the cause is to be sought. That is, the 
claimants to that post must be supposed to be finite in 
number, and to have all their names previously submitted 
to us, so that we have merely the task of choosing amongst 
their respective qualifications. In fact, we must assmne 
more than this ; for unless the possible causes are ex- 
tremely few in number — so that all their combinations can 
be taken into account, we must take it for granted that 
we have some indications given to us as to which are the 
serious claimants whose qualifications only have to be 
carefully tested.'* ^^ Hence "the greater the scope of 
existential knowledge, the greater is the likelihood of our 
being able to pronounce events causally dependent or inde- 
pendent." ^^ In most cases "those elements which we are 
apt to regard as separate antecedents, isolating them and 
representing them by means of letters, are largely the 
results of our own more or less artificial construction by 

** Venn, J., "Principles of Empirical or Inductive Logic," p. 431. 
See also Schiller, "Formal Logic," pp. 281, and 293-96. 
" Keynes, J. M., "Treatise on Probability," p. 277. 



LAW AND CAUSATION 187 

abstraction. There is nothing strictly corresponding to 
them in nature." ^^ Or in the words of still another 
author: "What the 'cause' of an event is (or is called) 
depends on the speaker*s interest and the purpose of his 
inquiry." ^^ "The choice of cause depends upon the social 
interests" of people, and we "make a choice determined by 
the frequency or the interest of certain conditions in com- 
parison with others." ^^ 

So far so good, then. But the subjectivity of causal 
relations may be shown also by the delimitation of time 
units within which causality is held to reign. We admit 
for instance that sometimes the interval is so small as to 
be imperceptible. Whether friction is a consequent of 
motion, or is a concomitant, strictly speaking, who will 
decide? Whether the explosion does really take place 
after the ignition of the powder, or is part of this act, 
who cares to measure the lapse of time in between? The 
question will possibly be deemed an unanswerable one. 

But more. Our time units in sequences are artificial in 
two principal respects, viz., first as an absolute span of 
time within which the law takes place, and secondly as the 
intervals between what is called cause and effect. We 
decide arbitrarily upon the temporal framework within 
which, say, a thunderstorm occurs, pointing to a "begin- 
ning" and an "end"; and we also set limits consciously 
or unconsciously to the quantity of time that may separate 
a lightning bolt from a thunder-clap. Always the present 
moment becomes a termmus ah quo. Regularly we refuse 
to trace our series of events beyond a certain point of 
the future. Why a thunderstorm begins here and ends 

*• Venn, "Logic," p. 77. 

^Schiller, "Formal Logic," p. 277. 

^ Enriques, F., "Problems of Science,' pp. 142. 



188 A CRITIQUE OF ECONOMICS 

there it is impossible for us to say, except that motion 
and commotion, sense data heaped up in a short stretch 
of time, impress us as a logical unfoldment of the phe- 
nomenon in question. That cycles of such event-complexes 
might be interlaced, that the intervals between two suc- 
cessive storms might constitute a unit for causally relat- 
ing its components, does not occur to us. Yet we may 
profit by asking something like this : Is the climate a 
cause or an effect of the contour of the land where it 
prevails.'' Which comes first and which last, if you please.'' 
Pondering a little on this we shall have to admit that 
either or both will do for a reply. Looked at from one 
viewpoint the weather alters the landscape, acting by 
erosion and corrosion, so that mountains are reduced 
to valleys, and the shore may be built up from alluvial 
deposits. But it is equally fair to point out that topog- 
raphy makes climate, since altitude and floral conditions 
and contour and soil qualities regulate radiation, con- 
densation, sky-conditions, temperature, etc. Dependent 
upon how we select our time units, one or the other set 
of facts appears as cause. In the realm of physical phe- 
nomena a reversal may thus be defended. All is either 
cause or effect, or neither. 

Causation and Correlation. — That of course brings up 
a somewhat different question to which we may now 
turn in order to complete our study of law and causa- 
tion. Namely, we are bound to ask : Does causation also 
rule in the world of non-physical events, for happenings 
such as the biologist, psychologist, and social scientist 
makes his specialty.? Is a reversal possible here too.? And 
if we treat causation simply as another way of expressing 
law, shall we draw a hard and fast line between natural 



LAW AND CAUSATION 189 

and other sciences? What seems a right answer to these 
queries ? 

Now, in the first place it should be definitely understood, 
since agreement on this point has been reached long ago, 
that no conflict can be trumped up between freedom of 
the will and causal determinism. For certain purposes, 
and not least of all the theological, the human will may be 
treated as a distinct entity, as a vital force, that is part 
of a larger personality and rises far above the level of 
causal happenings. Undoubtedly there is a sense in which 
man is a willing being, an independent agent who directs 
his conduct as he sees fit and shapes the routine of ex- 
perience according to his intentions. It is altogether fair 
that we take this view of the question at times, if only to 
provide a ground for an abstract ethics that serves to 
acquaint people with possibilities otherwise unsuspected. 
Illusions surely are often as useful, as necessary to 
achievement as the plainest of truths ! However, for the 
scientist the will cannot figure as a power exempt from 
the laws governing events in general. For him it is clear 
that will is but a particular may of rating the variability 
that marks organic matter and human beings in par- 
ticular. From a scientific standpoint will is one aspect 
of a situation whose components are as capable of cor- 
relation, as intimately bound up with physical forces, as 
the lowest forms of plant and animal life for which con- 
sciousness may be said not to exist at all. To me as 
doer my will is real. To the spectator also it represents 
a propelling force whose role is unique in the cosmos. But 
seen from another angle will is only a term for a wide 
range of variations, for adaptability to constants in the 
physical world. To will, thus, is to act rather than to 



190 A CRITIQUE OF ECONOMICS 

plan, and our degree of freedom must be measured by 
the trend and scope of changes which constitute human 
history itself. 

In the second place the causality of correlations, as 
compared with exact laws of nature, is obscured by the 
indefiniteness of the temporal and spatial units usually 
involved. In our laboratory work we deal with fairly 
definite spans of time, both in conducting the experi- 
ment as a whole, and in allotting limits to the intervals 
connecting a given sequence. But the more we pass 
from physical facts to the social or historical, the vaguer 
the boundary-lines assigned to our correlations. Cor- 
respondingly our idea of cause or effect changes as our 
time units change. A war for instance: What are its 
causes in the opinion of discerning men? Leaving aside 
the fact that the very nature of our material permits us 
to choose a large variety of data for a grouping into co- 
existences or sequences, we are further obliged to grant 
that much depends upon whether we take a short or 
long-time viewpoint. To contemporaries the causes are 
probably in plain sight. They Jcnow that certain per- 
sonalities or institutions or creeds or foreign policies 
or incidents of a tangible sort are responsible for the 
catastrophe. They have no hesitation to point a finger 
at the casus belli and to date the commencement of the 
war from those near-at-hand events. Not that the op- 
posing parties will agree even then — for the force of 
bias in such matters is axiomatic ! — but at any rate each 
side will have its explanation, selecting details that the 
popular imagination no less than that of the trained ob- 
server may seize upon. But let a few decades or a hun- 
dred years go by, and the values are transformed so as 



LAW AND CAUSATION 191 

to he unrecognizable. What once seemed a prime factor 
now has no standing whatever ; what formerly was not even 
noticed, now looms up as an event of cardinal importance. 
Thus the same set of antecedents get a diiferent causal 
rating, and thus different events are brought into cor- 
relation from one era to the next, until perhaps after 
centuries a general consensus of opinion is reached. Cau- 
sation thus proves to be in fact what the philosopher has 
known it to be in theory, namely, a way of ordering events 
so that they invariably or with a tolerable degree of 
regularity recur together. Even for the historian it is 
possible to establish regularities if he reduces event-com- 
plexes to the primary relations of their physical or 
psychic components ; and for the social scientist the 
search for typical transactions is of course a first duty. 
Or if we deny the historian the right to hunt for types 
of events, we must yet allow that all event-complexes may 
be correlated by sociologists or economists for the pur- 
pose of finding more or less perfect recurrences. It will 
depend upon the degree of quantitative or qualitative 
correlation whether causality is attributed to it or not; 
but that is not to deny the possibility of such a causal 
nexus. 

The TnaJce-up of the events themselves is however, in 
the third place, equally significant for our traditional 
distinction between causal and non-causal events. For 
owing to the complexity of the units correlated by social 
scientists or biologists or psychologists the basis is lacking 
for that one-to-one correspondence that apparently per- 
vades the whole physical world. As we pass from non- 
organic to organic phenomena, as we pass from floral or 
faunal facts to the social in their multitudinous aspects, 



192 A CRITIQUE OF ECONOMICS 

we are compelled to reckon with a variability, with com- 
binations of events, each counting as a single unit for 
our requirements, that make their reduction to indi- 
visibles or "atoms" impossible. The generic difference 
between animate and inanimate elements is quite incontest- 
able. The compound nature of the events which we press 
into a formula for generalization suggests itself on first 
thought. To correlate sizes of the leaves on a tree, or 
the weather with the migration of birds or with human 
wanderings, or prices with types of social structure, or 
the distribution of plants with insect life — to do this is 
to work with units which manifestly are resolvable into 
much smaller and simpler ones. The social investigator 
would concede this no less than a physiologist or chemist. 
But this being so it follows that our sense of the non- 
causal character of such correlations is merely due to 
ignorance. We admit that the mechanistic view is not 
directly applicable. We see difficulties aside from the 
instability which marks organic behavior or the expressions 
of a social group. We are confronted not only with an 
indeterminate number of variables, but likewise with many 
unknown qualities and quantities, some of them again com- 
pounds, others imaginable as raw-materials for natural 
science. We say we cannot locate the "causes." We 
perhaps argue that no causal connection exists, meaning 
that the compounds surveyed do not evince the kinds of 
reciprocity, the measurable quantitative interdependence, 
inherent in the units of physics. Of course, so we should 
put it. But since cause and effect in any case are only 
names for sets of events within a stated law of nature, 
since with one exception to be mentioned later we may 
arrange our time-units so as to make cause and effect 



LAW AND CAUSATION 193 

interchangeable as units within that law of nature, there 
is no reason for pitting physical against social events, as 
if they were irreconcilables. Nor need we waive the 
right of further reducing our units in the groups, so that 
a causal attribute may somehow be revealed in our cor- 
relations. 

Or to state this thought more concisely : We may con- 
sider an event-complex explained in so far as we have 
referred it to known "causal" values obtaining for the 
smaller units out of which the complex is composed. Thus 
if we wonder whether a high positive coefRcient of correla- 
tion between the educational status and the criminal 
record of a country can be causal, we need only to define 
our terms education and crime, and then search into hu- 
man traits and actions that are more or less regularly 
connected. Or we may trace these ideas, motives, and 
habits of education and crime further back to biochemical 
groups known in physiology; or again we may go from 
sociological data to the biological, and thence to perhaps 
the physico-chemical. In some such way we actually do 
reason, and this regress back to the simpler units handled 
by natural scientists is all that can be done to establish 
a causal-nexus in our statistical social correlations. To 
say that they are not causal is to contrast their compound 
units with the regularity of the simpler elsewhere, which 
we have arbitrarily beforehand designated as causes or 
effects. 

Whether anything is gained by this regression is an- 
other matter. It may appear that in so converting cor- 
relations into physical items we have really changed the 
nature of our inquiry and lost what we originally set out 
to do. But evidently some such system of indirect link- 



194 A CRITIQUE OF ECONOMICS 

age may be used to interlace any class of events with a 
second or third or tenth, until physical "causality" 
emerges. Day and night thus are as causal as any consti- 
tuents of a law of nature. To pronounce this succession 
non-causal, as logicians have done again and again, is 
to misunderstand the hypothetical, pragmatic character 
of causation in general. A great many correlations are 
"empirical" ~^ laws in that their final units have not been 
disclosed. We see regularities and cannot trace them back 
to known regularities of other groups of events ; or we 
are struck with the imperfect degree of stability, with the 
variations in detail that bid us to proceed carefully before 
formulating an exact law of nature. Such distinctions 
of relative constancies, of groups of recurrences accord- 
ing to kinds and variability of their units are quite neces- 
sary, but they should not, they cannot, prejudge the case 
for causation. Causality applies either to correlations 
as well as to laws of the physical sort, or else we admit 
it to be a convenient term merely which helps us to dif- 
ferentiate the elements in a law or correlation, the tem- 
poral and spatial units for this purpose being varied as we 
see fit. 

But will this two-sided reading of our successions of 
physical events oblige us to extend it also to a correlation 
of physical with non-physical events? And furthermore, 
what becomes of chance correlations if we repudiate so 
uncompromisingly the old notion of cause and effect? A 
few words on these topics will not be inappropriate, al- 
though they can add nothing to the essentials already 

brought out. 

^ For definitions of empirical law see Mill, "Logic," Book III, ch. 
16; Bain, A., "Logic," 1874, p. 333; Hibben, J. G., "Logic," 1904, 
p. 351. 



LAW AND CAUSATION 195 

As to the reversibility of events, there should be no 
doubt about the difference between connecting physical 
events alone, and linking them with what are called psychic 
or social events. And of course, the correlation of psychi- 
cal or social events with each other is also a distinct prin- 
ciple. Thus, if we ask ourselves whether density of popu- 
lation and climatic conditions may in any way be causally 
related (giving the word causal its traditional meaning), 
the answer will be: Certainly. It seems reasonable to 
attribute facts of population to facts of climate, and so 
men have done often enough. But may we then go from 
population as a cause to climate as an effect, in the sense 
that we have, awhile ago, made either topography or the 
weather both cause and effect.? Now, in so viewing the 
problem we are reminded that a notable difference exists. 
We shall argue: The climate surely may account for 
demographic data, but these latter have no bearing upon 
the meteorological data. This seems assured. But what 
is the reason. P 

We must answer that life phenomena do involve a power 
for variation, a range of adaptation as the biologist or 
psychologist would say, which make a dual tracing of an- 
tecedent-consequent impossible. There is a real and im- 
portant gap between organic and inorganic facts, or at 
any rate between the latter and the higher forms of life. 
The units of our correlation of vital phenomena — biologi- 
cal or sociological — are effects only, and not causes in 
our illustration because of their very complexity and evo- 
lution out of simpler elements prevailing in the realm of 
physics and chemistry. There is, in other words, a prin- 
ciple of evolution from electrons to ideas which must be 
understood before the line between dual and single causa- 



196 A CRITIQUE OF ECONOMICS 

tion can be resolutely drawn. We must realize the deriva- 
tion of the complex units of statistics, or say of the life- 
sciences, from the irreducibles of natural science, before 
seeing the consistency of our distinction. Any one set of 
physical events may be either cause or effect, but as be- 
tween such and psychological or socio-economic facts, we 
shall have to grant that psychics has no influence upon 
physics. Or, rather, since this is not strictly true, let us 
say that mthin any one organism psychics and physics are 
linked by a dual causality so that each group of facts may 
appear as either cause or effect. But otherwise physics 
acts only on psycliics, and not vice versa ; or physics acts 
only on physics, or psychics only on psychics, possibly 
with the accompaniment of physical changes in the organ- 
isms concerned. But that is neither here nor there. The 
main principle to seize upon is the limit within which caus- 
ality is reversible. And aside from that, we might note 
also that a plurality of causes will prevent us from attrib- 
uting demographic facts to climate alone, while on the 
other hand we should be willing to acknowledge a causal 
connection between variations in climate and population 
features taken strictly in a physical sense. It is merely 
the immeasurable superiority of cosmic forces over the 
physical quantities represented by, and interacting within, 
individuals and their aggregates that bids us to read caus- 
ation here in one direction. We ascribe functions solely 
to climate which on a minor scale exist also for the physics 
of social life, and in precisely the same causal sense. 

All this is quite understandable and in accord with our 
next remark that chance correlations implied or explicit 
are impossible from a scientific standpoint. The word 
"chance'* clearly is a misnomer if a Uniformity of Nature 



LAW AND CAUSATION 197 

prevails, and is wrong even when referred to specific causal 
connections such as are embodied in laws of nature or in 
ordinary statistical correlations. There must be causa- 
tion everywhere, or else it is nowhere. Since cause and 
effect mean merely regular connections of designated 
classes of events, all regularities meeting certain stand- 
ards must be causal. But, of course, we may measure de- 
grees of regularity of the recurrence of groups of events, 
and deny "causality" to some of them in so far as the 
degree is below a fixed — or more or less fixed — minimum. 
That is entirely possible and indeed represents the actual 
state of things. The proportionate quantitative changes 
of two or more homogeneities that do not repeat them- 
selves with sufficient uniformity we decline to call real cor- 
relations or causal connections. Statistical induction, in 
such cases, is out of place. Our coefficients are said to be 
unsatisfactory because too variable or too low. But this 
is not to deny causation in general, nor to accept popular 
opinion on "accidental" happenings. 

Conclusions. — Our conclusion on the whole subject thus 
will be as follows. First, law and correlation have much 
in common and may be treated under one heading, 
even though diff^erences in degree will become conspicu- 
ous. Second, causation is for both or for neither ac- 
cording to viewpoint and definition of the term. Third, 
a subjective element permeates all generalizations of sci- 
ence, but this forms no bar to the objective reality of a 
substratum of facts out of which the human mind builds 
its laws of nature. And fourth, the diff^erences between 
law and correlation call for diff^erences in method which 
it will now be our task to examine before stating the 
methodology of economics in particular. 



CHAPTER EIGHT 
THE METHODS OF SCIENCE 

Preliminary Observations. — As remarked before, in dis- 
cussing the methods of science it is well to distinguish 
between inference on the one hand, and measurements on 
the other. Inference is not something peculiar to scien- 
tists. On the contrary, it is the common property and 
practice of all people, being a part of human nature and 
an element in all social life. Indeed, if we wish to give a 
relative rating to these two phases of scientific progress 
there is no doubt that for the earlier stages of history 
mere inference must have been much more important than 
those exact measurements which, in historical times, have 
helped to make us masters of our natural environment. At 
the beginning everything depended on a rough apprecia- 
tion of differences and resemblances, that is, on man's 
reasoning by analogy and on induction by enumeration. 
Method in the larger sense is this use of inference for pur- 
poses of adaptation to practical requirements. 

In the narrower sense, however, we must define method 
as a more or less clearly marked procedure for discovering 
fixed relations between things, this procedure necessitat- 
ing often the use of instruments for measuring facts and 
their changes. Any methodology of science therefore must 
take notice of three distinct sets of facts, viz., of infer- 

198 



THE METHODS OF SCIENCE 199 

ence In several aspects, of certain types of measurement 
by which different kinds of subjects are made a study for 
science, and of the results attained by science, particu- 
larly as laws of nature or as causal relations among speci- 
fied events. Methods for different sciences may vary in 
so far as the points of emphasis differ, and differences in 
subject-matter and in aim bid scientists to rely upon one 
scheme of measurement or another; but inference is 
everywhere the same. To use in- and de-duction scientifi- 
cally is simply to turn both to better account than a com- 
mon-sense viewpoint could promise. 

The methods of science resolve themselves on closer 
inspection into three standard ones, unless indeed a mere 
classification of properties, because carefully undertaken 
and sufficiently complete to cover all distinguishable fea- 
tures, is itself called a method. If we assent to this plan 
then many sciences will of course work independently of 
measurement in the precise sense of the word. But other- 
wise there is good ground for observing a threefold divi- 
sion, the first being experimentation, the second statistics, 
and the third reflection. In other words, barring the 
purely classificatory disciplines such as botany was until 
the last century, sciences reach their conclusions either 
through experiment, or through a counting and assembling 
of large numbers of like facts, or through an introspective 
analysis which, though resembling in part the first two 
methods, has peculiarities of its own.-^ 

Aids to Science. — Experimentation has been called the 

method most characteristic of physics and chemistry, and 

this is undoubtedly true. It must however be noted at the 

* For a conventional analysis of scientific method see, e.g., Lodge, 
R. C, "Modern Logic," 1920, ch. 18, or Sellars, R. W., "Essentials 
of Logic," 1917, chs. 16-18. 



200 A CRITIQUE OF ECONOMICS 

outset that at least part of its work is being done just as 
well by the statistician or the reflective thinker, although 
outwardly this does not so appear. Namely, if it is true 
of natural sciences that they depend largely on observa- 
tion and trial and error, this is no less true of other fields 
of inquiry. Indeed, it follows from the nature of human 
thought, and from the principal facts of reasoning, that 
observation and trial and error antedate the methods of 
measurement now most generally associated with exact 
science. 

What observation involves is well known. We have to 
deal here with men who, whether scientists or not, use 
their senses to perceive events occurring outside, to com- 
pare them as to resemblances and differences, to classify 
attributes or events on this principle of likeness and un- 
likeness, and to remember as much of the situation as 
seems necessary for certain practical or purely scientific 
ends. In the last analysis observation is a crude kind of 
abstraction. It is attention directed to a select group of 
data, of happenings or appearances, which we try con- 
sciously or unconsciously to bring into an interdependence 
different from that of time or space alone. We start 
with comparison and distinctions guided by our senses, 
but quite usually wind up with a judgment of causal rela- 
tions or even with generalizations that do not in tenor or 
purpose differ materially from those of science. But one 
fact deserves to be noted in setting observation apart 
from scientific work, namely that the former relies exclu- 
sively upon sensation and perception, so that the limits 
of our knowledge derived purely from observation are 
proverbially unsatisfactory. We may of course remem- 
ber much of what we have observed, and so extend greatly 



THE METHODS OF SCIENCE 201 

the range of our analysis by combining images centrally 
aroused with the picture before our very eyes ; but this is 
still a process differing in essence, and not simply in de- 
gree, from what the scientist aims at. 

Trial and error is, in this respect, no better than obser- 
vation, for it too relies chiefly upon sense experiences at 
first hand. Whether we turn to a practical problem that 
calls for immediate solution in the course of our everyday 
needs and interests, or whether our experiment deals with 
topics remote from the possibilities of practical applica- 
tion, the primacy of perception and the absence of gener- 
alizing concepts is apparent in both situations. The com- 
mon-sense flavor of trial and error is a characteristic that 
appeals to all and correspondingly links it up closely with 
mere observation. 

It differs from observation however in that we under- 
take purposely certain variations so as to find a solution 
of our difficulty, that is, to trace what in logic and popu- 
lar parlance both is called cause and effect. We look for 
correlations of a particular sort. We wish to obtain light 
on facts that constitute a departure from the ordinary. 
Or in other words, in trial and error we are usually con- 
fronted with a new turn of events to which we desire to 
adjust ourselves perhaps on the instant. The facts to be 
appraised and correlated are practical in most cases, al- 
though not necessarily so. Furthermore, in meeting this 
contingency, we have neither time nor inclination to ex- 
pand our problem, that is, to generalize consciously so as 
to unravel a skein of relations indicative of laws of nature. 
To find laws is not primarily the function of the matter- 
of-fact man who proceeds by trial and error. The con- 
ditions are given in the outside world and are not, in the 



202 A CRITIQUE OF ECONOMICS 

majority of cases, reducible to anything like an orderly 
array of selected facts. No desire arises to measure care- 
fully the quantitative changes that might by a scientist 
be discovered. The aim is to overcome obstacles, to find 
out why the way in which we have worked before does not 
give the wished-for result this time. Trial and error thus 
is bent on measuring the effect of interferences, of sub- 
tracting from the whole situation that element which shall 
be amenable to our usual methods. Novelty has to be 
studied and resolved into familiar connections. We pro- 
ceed haphazardly, without studied hypothecation or the 
use of instruments other than such tools as a working- 
man would use to turn out his product. Instead of fol- 
lowing habits we rely upon our resourcefulness. We are 
led involuntarily to experimentation, and like animals, 
whose ingenuity is limited and not easily wrought into a 
systematic adaptive scheme, we toy with the facts at 
random, guided only in a meager degree by previous ex- 
perience or by suggestions that approach science in their 
definiteness. 

Now, while these two preliminary stages of method are 
common to all three standard methods — or rather, though 
each method involves observation and trial and error in 
some aspect — experimentation proper is greatly superior 
to them. For experimentation is that kind of research 
which achieves most by methodical measurements and ad- 
ditions or subtractions to and from a complex of events, 
things and attributes being arranged expressly for that 
purpose. Experimentation, thus, is a variety of research 
which does what trial and error scarcely ever presumes 
to attempt: It selects its data. It arranges means by 
which to control the changes in these data. It resorts to 



THE METHODS OF SCIENCE 203 

the use of instruments by which, directly or indirectly, 
measurements of maximum nicety are made possible. It 
varies the data under investigation at will, as much and 
as often, as regularly or as irregularly, as seems expedi- 
ent. It starts with assumptions usually, or makes use of 
them some time during the act of research. It endeavors 
to ascertain permanent relations, thus projecting itself 
beyond the realm of sense into that of concepts and the 
imagination. It creates difficulties rather than dodging 
them. It puts itself in the service of others, of mankind 
in general. And finally it tries to unify an immense diver- 
sity of laws or theories into a system. Experimentation 
therefore is the most prominent of scientific methods, and 
the gateway through which men have entered into a king- 
dom of thought and economic treasures that grows with 
each successive generation. 

The use of standards is one of the characteristics of 
science, and must be regarded as of primary significance 
particularly for natural sciences. Physics and chemistry, 
astronomy and biology, are fields in which the use of 
standards is most obvious and decisive, but other sciences 
also have them, although a notable difference appears at 
once. For while natural sciences detach their standards 
from their subject-matter, giving them an objectivity that 
is genuine and beyond cavil except perhaps from a philo- 
sophical viewpoint, social sciences must in part reckon 
with norms which themselves constitute part of the data 
to be measured, so that complications arise that a physi- 
cist knows nothing of. 

However, even for natural science two facts stand out 
in plain view; namely, first, that relativity is a basic 
postulate as well as a fact empirically verifiable, and sec- 



204 A CRITIQUE OF ECONOMICS 

ondly that all standards anchor, at bottom, in a few pri- 
mary concepts which in turn are no more than definitions. 
Thus, on the one side, we might learn from the now current 
speculations about Specific Relativity, quoting the words 
of Einstein, that "there is no such thing as an indepen- 
dently existing trajectory (path-curve), but only a tra- 
jectory relative to a particular body of reference." ^ In 
this sense all measurements presuppose a standard by 
which others find their value; and this meaning of the 
relative worth of scientific standards would be as sug- 
gestive for social sciences as for the physical. But on the 
other side we must remember, more especially, that the 
great majority of standards are compounded of simpler 
ones which themselves go back to definitions arbitrarily 
given, no matter how "exact" our results. Thus, to illus- 
trate by one example: If we open a text on physics at 
random, happening to strike the term "kilowatt," and ask 
ourselves what this means, we shall get an answer some- 
what as follows. To wit, the kilowatt is a thousand watts, 
and the watt "the power possessed by an electric current 
of one ampere under a pressure of one volt ; this latter 
being the electromotive force which will cause a current 
of one ampere to flow through a resistance of one ohm." 
Now, what is the ohm.'' We are told: "The resistance 
offered to a current of electricity by a column of mercury 
106.3 cm. long, having a mass of 14.4521 gram at a tem- 
perature of melting ice" ; and the ampere is the current 
which, when passed through a proper solution of silver 

'Einstein, A., "Theory of Relativity" (translated by Lawson, 
R. W.), 1920, p. 10. See also Ames, J. S., "Presidential Address 
before Physical Society, December 30, 1919; and Eddington, A. S., 
"Space, Time, and Gravitation," 1920, p. 8: "Natural Geometry is the 
theory of the behavior of material scales." 



THE METHODS OF SCIENCE 205 

nitrate, will deposit upon the cathod .001118 gram of 
silver in one second. The gram in turn is the one-thou- 
sandth part of a kilo, which itself is supposed to have 
the same mass as that of one thousand cubic centimeter 
of pure water at 4° Celsius, zero being the freezing point 
of pure water at sea-level, while the boiling point is one 
hundred degrees above that. 

This, of course, leaves us still the centimeter and the 
second, to say nothing of other terms which might be said 
to call for definition, if our idea of a kilowatt is to be 
rounded out in all directions. However, waiving these 
further explanations, we proceed to the two remaining 
definitions, and find first, that a centimeter refers to a 
linear standard which is the length of a bar of platinum 
in the city of Paris, in France, this bar containing 10 per 
cent iridium at 0° Celsius ; while the second is a fraction 
of the solar day, whose prototype is the sidereal, that is 
the time interval between two successive returns of a fixed 
point on the earth to the meridian. Thus a reliable unit 
of time measurement is established for which astronomers 
have vouched, and so our kilowatt becomes intelligible as 
a derivative of simpler units which terminate somewhere 
in definitions, that is agreements. 

Standards are important for science, since it frequently 
quantifies qualities, going in this respect contrary to com- 
mon sense. Quality and quantity are of course aspects of 
one and the same thing, and therefore should not be sepa- 
rated as if it were impossible to treat a fact from both 
viewpoints. In reality there is no class of things whose 
quantities or degrees of quality could not be compared in 
a continuum of measurement. Quality and quantity are 
categories like time and space that represent modes of 



206 A CRITIQUE OF ECONOMICS 

thinking, if nothing else, and permit us to bring order into 
chaos. ^ But it is significant that the impressions of our 
senses may yield qualities when measurements of science 
demand quantity. The treatment of color and sound as 
wave length and rates of vibration are old illustrations a 
propos of this subject. The curves which to the eye seem 
so entirely different from straight lines are resolved into 
points by mathematicians who see continuity even while 
postulating discreteness. But let us not forget that it is 
as easy to make classes out of different sizes of an object 
as it is necessary for a physicist to reduce quality to 
point-events. For one purpose there are as many quali- 
ties as we have sensory nerve endings ; for another the 
number of qualities depends on our sensitivity to degrees 
of intensity in stimuli ; and for yet another purpose we 
may feel obliged to picture the whole world as an infinite 
— or finite ! — number of atoms whose perceivable interac- 
tions alone mean quality and individuality. Organic be- 
ings, for instance, may always have to be regarded as in- 
dissoluble units, since laws of life function in each sepa- 
rately and create differences which for practical purposes 
are inextingushable. We know, e.g., that ten mediocre 
men do not equal one man of genius, and that the interests 
or actions of one do not depend altogether upon those 
of a second or third. Yet these facts do not prevent 
natural scientists from quantifying certain sense data, 
nor are they inconsistent in harping on quality or 
attributes at other times when their search for laws urges 
them to. 

Experimentation as the First Method. — The method of 
science, and particularly of the natural sciences, is there- 

* For logical aspects see Bosanquet, B., "Logic," vol. I, p. 127. 



THE METHODS OF SCIENCE 207 

fore both a qualitative and a quantitative analysis.^ 
Events are described as happening together in time or 
space, and by event we may mean either an object discern- 
ible by the senses, or something imperceivable. The chem- 
ist correlates substances or qualities as well as quantities 
of each element. In his case the two phases of measure- 
ment are plainly visible. But they exist just as well for 
physicists or other investigators, although the quantita- 
tive view may be most noticeable. In all cases of experi- 
mentation students aim at an isolation of things and their 
relative amounts, changes under more or less complete 
control of the factors in question being narrowly 
watched and recorded. Science cannot attain to cer- 
tainti/ unless it succeeds in finding irreducible u/nits, 
that is, things or magnitudes which invariably go together 
and so provide the basis for the formulation of a law. 
Irreducible units are as essential to exact law as atoms 
to chemistry. The final outcome of all inquiries must 
always be the detection of that smallest number of ele- 
ments or events which regularly occur in succession or 
simultaneously. It is by isolating the facts which give 
this simplest formula for event-complexes that the natural 
scientist fulfills his chief function. 

The method of variation ^ is hence a standard proce- 
dure of physical scientists. Quantities are correlated as 
absolutes or as variables ; and the variations are found 

*0n significance of twofold measurement see: Spencer, H., "Gene- 
sis of Science," in "Illustrations of Universal Progress" (Appleton 
& Co.), 1890; Pearson, K., "Grammar of Science," 1911, p. 173; 
Westaway, F. W., "Scientific Method," 1912, p. 214. 

° Treated usually from standpoint of causality, and made familiar 
by Mill, J. S. For excellent tabulations see Schiller, F. C. S., "Formal 
Logic," 1912, ch. 19, and p. 265; and Joseph, H. W. B., "Introduction 
to Logic," edit. 1916, pp. 439-40. 



208 A CRITIQUE OF ECONOMICS 

either to express constant ratios, or to approximate them. 
Whenever fixity of proportion, or constancy of correlates 
is lacking, we must infer that the latter are compounds 
and need further reduction to simpler units. In making 
note of these extraneous elements which, from the stand- 
point of any one central correlation, appear as "con- 
ditioning" factors, we may be able to find other laws of 
nature. Variation amidst changing known or unknown 
events becomes necessary whenever a "conjunction of 
elements or features in the real [world], whose connection 
is not intelligible from a consideration of themselves, is 
made clear through connections shown between them and 
others." ® A plus and minus is introduced, whose bearing 
upon the problem under review is itself treated quanti- 
tatively or qualitatively, according to needs. What 
logicians for generations laid down as the Canons of In- 
duction, is this addition and subtraction of events, the 
differences or agreements being checked up so as to help 
us establish the correlation of "essentials," i. e., a law 
whose regularity should equal our notion of immutable 
necessary connections. Logicians, to be sure, have worked 
at this problem with a desire to explain causality, or to 
show how things are proven to be the cause or the effect. 
But it follows from what has previously been said that a 
more modern and just estimate will ignore the old belief in 
specific causation, confining itself instead to the fact that 
invariability of sequences or coexistences does appear, or 
where not in evidence, would prevail except for interfer- 
ences which themselves obey laws as truly as our par- 
ticular correlates. 

In general the experimental method revolves about this 
•Joseph, "Logic," p. 502. 



THE METHODS OF SCIENCE 209 

weighing of alternatives, of things common to several 
consequents or antecedents, and of unique properties 
which in any one case indicate what is regular and what 
is not. "Inductive conclusions," as one writer has aptly 
stated, "are established disjunctively by the disproof of 
alternatives." '^ Science uses the disjunctive syllogism 
more than any other. It uses it in measuring the integral 
parts of a complex to be analyzed as a law or as a set of 
laws. It uses it to measure the conditions as well as the 
problem itself. It compares, in a precise quantitative 
manner, all changes subject to control, and generalizes 
in due time on their significance. Experiments are re- 
peated a few times or a great number of times, dependent 
upon the number of events under investigation, upon the 
degree of regularity tentatively ascertained, upon the 
novelty of inferences suggested, and upon the importance 
of results theoretically or practically. In most cases 
it is inference from enumeration, as well as a compari- 
son of partial or total resemblances, that leads to substi- 
tutions or reasoning by analogy. Hypothecation is indis- 
pensable in most experiments. An hypothesis entitles the 
student to make deductions, to continue his measurements 
and see whether his deductions agree with the facts so 
discovered, and to pronounce his inference "verified" if 
the agreement is complete. Or rather, since a consequent 
may have several apparently identical antecedents, an 
important duty of the experimentalist is the right choice 
of an hypothesis, the calculation of pros and cons accord- 
ing to prior knowledge, in harmony with our interests 
at the time. We usually have explicit and implicit as- 
sumptions. Both will be found if we go back far enough, 
''Ibidem, p. 444. 



210 A CRITIQUE OF ECONOMICS 

although on the surface the explicit ones suffice. In the 
words of one authority: "The verification of the explicit 
hypotheses requires an interpretation of experience sub- 
ject to the implicit hypotheses. In their turn these latter 
are in great part verified by means of other theories and 
explicit hypotheses, and are corrected when needed, by a 
wider comparison with the knowledge already acquired." ^ 
Association, as was recognized early in the history of 
inductive logic, plays a notable part in this act of hypothe- 
cation. It is unavoidable that men let themselves be 
guided somewhat by the past, no matter how much argues 
against it in the abstract. Association by similarity, ap- 
parent or real, exercises an appreciable influence because 
"thoughts which resemble one another involve brain proc- 
esses which at some point have identical elements" or 
"identical nervous pathways." ^ This physiological view 
of a psychic fact may be accepted as a reasonable way of 
explaining the value of associational thinking in scientific 
research. But of course, purpose also directs our quest 
for premises, thus eliminating automatically certain rival 
assumptions which later one may prove to be superior. 
The results must decide in the matter. If the end justi- 
fies the means in the sense that inductively gathered data 
tally with conclusions deductively made, we may feel sure 
of both. We must however remember that a perceptual 
consequent studied in the laboratory may have many 
antecedents, and vice versa, so that on the one hand 
"causes" experimentally verified need not after all be 

^Enriques, F., "Problems of Science," 1906 (Transl. by Mrs. 
K. Royce, 1914), p. 165-66; also Jevons, W. S., "Principles of 
Science," 3. edit., p. 228. 

^ Angell, J. R., "Introduction to Psychology," 1918, p. 165. A 
very lucid presentation also in Muensterberg, H., "Psychology, Gen- 
eral and Applied," 1914, ch. 8. 



THE METHODS OF SCIENCE 211 

irreducible units, while on the other hand such final units 
Tnust be interrelated uniformly, however variable their per- 
ceptible quantitative relations. // we have found real 
indivisibles of events in a qualitative sense, proving them 
single events, their several inter-connections will consti- 
tute exact laws of nature. Such is the scientific view of 
a Uniformity of Nature. 

Statistics as Second Method. — But suppose our in- 
quiries do not reveal such absolute regularities of re- 
currence? Suppose our events are not as homogeneous 
as those of physics and chemistry.? Is then a general- 
ization impossible.'* Shall we then forego our desire to 
fathom the inward nature of things, to discover necessary 
connections and regularities of recurrence less than per- 
fect.? 

The answer to such questions is the use of statistics and 
of a new type of measurements. Statistics as a method 
links the quantitative exactness of experimentation with 
the purely qualitative analysis of reflection. But it must 
be allowed, incidentally, that it cannot be more than a 
method. It cannot be a separate science, for the relations 
it analyzes form part of many fields of work, each of 
which is already recognized as a true science. The origi- 
nal meaning of the word statistics is not tenable to-day. 
Human relations have long been assigned to several dis- 
tinct, albeit affiliated, studies ; and the variety of data 
covered by each has enormously grown. What is more, 
there are also natural sciences which avail themselves of 
the statistical method, so that as a science statistics would 
be extremely eclectic, to say the least. Whether it be the 
study of games of chance, or of the weather, or of organic 
heredity or of the variations of morphological traits in 



212 A CRITIQUE OF ECONOMICS 

organisms, or of social data — in all cases the statistical 
method will prove useful regardless of what particular 
science is involved. As a method statistics must interest 
methodologists. As a study of some select group of events 
it can form merely a part of a larger problem preempted 
by this science or that. 

The Field of Statistics. — What then are the circum- 
stances which make a resort to statistics advisable or 
necessary.'* 

In the first place, though, statistics is applicable also to 
certain data of the physical sciences, it refers chiefly to 
events or units which are secondary and complex. That 
is to say, the units are most commonly not the last, irre- 
ducible ones known to physicists or chemists, but such as 
are presented directly to the senses and built up, as it 
were, out of irreducible units. A reduction of perceptual 
units to the conceptual of abstract science is always pos- 
sible. If we so choose, we may trace a definite qualita- 
tive or quantitative relation between the things of com- 
mon sense and the atoms or electrons (or whatever the 
name be) of the scientist. But the statistician usually 
takes things without reducing them to final units. His 
events or propositions are secondary magnitudes whose 
components may be shown to observe physical laws. In 
this sense also the units of the statistician are commonly, 
though not always, compounds and groups of events. 
What in the preceding chapter were called event-complexes 
constitute a large portion of the statistical raw-material. 
The weather, e.g., is studied as a single fact, though it 
comprises a number of distinguishable facts such as water 
or vapor, temperature, air currents, etc. Each of these 
constituents is again resolvable into finer units, which 



THE METHODS OF SCIENCE 213 

natural science analyzes for one purpose or another; but 
all of them together make up the class of events known as 
the weather. So also do deaths or wage-rates or organ- 
isms and their parts, or the categories of social sciences, 
represent complexes more or less apparent. Relations 
such as constitute an invalid or an epidemic or a crime 
or an improved-farm may be treated as single entities, 
though of course at a risk only too familiar to students. 

In the second place, statistics is a valuable method 
where the "conditioning" phenomena are either indetermi- 
nate in number or of unknowable make-up, as for instance 
in the throwing of dice or in meteorological events. In 
such cases the classifiable number of elements may be few. 
But if time and place or spatial units affect our calcula- 
tion of magnitudes, if the facts accompanying our se- 
quence cannot be measured or qualitatively analyzed, we 
must treat them as variables and trust to numbers of 
occurrences for light on the problem. Even then no prin- 
ciple of constancy need appear. That would be a ques- 
tion by itself. But the mere incommensurability of our 
modifying factors for any particular set of events will 
urge us to try statistics. 

In the third place, the temporal and spatial units in 
statistical measurements are frequently indefinite. Instead 
of close successions or of simultaneities evident to our 
senses we have vague sections of time and space. The 
total period or area for which our events are studied may 
be of uncertain length ; and apart from this, the intervals 
between the events of any one single series may be ill- 
defined. A hard and fast line therefore cannot be drawn 
between sequences and co-existences. Frequencies and 
correlations will be treated independent of time, or as if 



214 A CRITIQUE OF ECONOMICS 

it made no difference whether they occurred together or 
in succession. Our temporal and spatial units, too, are 
likely to be larger than a natural scientist would com- 
mend. Units of seconds or hours are not common. Again, 
a certain license with concepts of periodicity is taken by 
statisticians, which colors their results. More important 
however : Large time units multiply the variety of possible 
combinations of primary elements into the event-complexes 
counted and compared by statistics. Regular connections 
thus are less easily established, and the principle of plu- 
rality of cause and effects has full sway. 

This means then, in the fourth place, that statistical 
methods are serviceable whenever our recurrences of rela- 
tions are imperfect and impermanent. Instability of fre- 
quencies is the other side of the stability which we find 
and accept as the utmost attainable in such fields. Per- 
fect regularity in all details would mean a law of nature, 
and is attributable to facts which give experimentation 
its supreme position among methods. Partial repetition, 
and hence a variable degree of constancy, points to con- 
ditions demanding a statistical adding and subtracting. 
Variability is unavoidable because of the immense number 
of facts involved in our examination of particulars. In- 
creasingly as we p.iss from inorganic to organic, and 
from biological to social, phenomena we meet with complex 
relations, with things inherently changeable and subject 
to erratic fluctuations. Viewed statistically the world is 
measurably in a constant flux. Facts never repeat them- 
selves exactly as once experienced. Each episode is 
unique, and intertwined with others so as to defy our 
ingenuity to unravel them all. Variability and movement 
exist objectively. As metabolism or as an elan vital, as 



THE METHODS OF SCIENCE 215 

human will or public policy this disposition to vary mani- 
fests itself in things of life. In lieu of a mechanical paral- 
lelogram of forces we have an incessant anabolis and 
katabolis of physical and psychic aspects. Change thus 
is more than quantitative. It is not only a variation of 
magnitudes that must be gauged, but also change of 
qualitative relations such as everybody observes on a 
limited scale, without special means and methods. Sta- 
tistics for this reason centers in problems of rates of dif- 
ference and frequency, in percentage scales and compara- 
tive studies of variables. 

Finally, and fifth, it is a commonplace that the statisti- 
cal method is most effective where the events to be studied 
cannot be reproduced at will. Vital phenomena, the shak- 
ing of dice, economic relations, and the data of bio-metrics 
are not amenable to laboratory measurements because we 
cannot isolate particulars, cannot recreate all the con- 
ditions accompanying each set of correlates. Hence, for 
lack of a deliberate predetermination of magnitudes or 
different classes, we must count them as they come, noting 
variations and establishing interdependencies in that man- 
ner. If we wish to make selections it must be conceptually 
rather than perceptually. In other words, while a chemist 
may detach real events in time and space, the statistician 
will detach them only by way of classification. He must 
classify and then count classes and their respective fre- 
quencies. To this extent he may single out certain hap- 
penings for his own purposes. But the actual happen- 
ings escape his control. 

Statistical Measurement. — The chief branches of sta- 
tistical measurement rest directly or indirectly on these 
five characteristics which delimit the field of statistics. It 



216 A CRITIQUE OF ECONOMICS 

will be convenient, however, to distinguish from the outset 
between its external technique and the principles of meas- 
urement as such. Or rather, we would do well also to dif- 
ferentiate sharply between a descriptive and an inferen- 
tial statistics. ^^ For it is one thing to measure things or 
to record relations, and quite another to infer anything 
from these as to future events. Measurements may be 
easy when induction is impossible ! 

The external or mechanical side of statistics is not, of 
course, negligible; but it may be stressed at the cost of 
principles which bear immediately upon problems of in- 
duction. To a degree the statistician is helped by cal- 
culating devices and the use of logarithms. He observes 
certain rules in collecting materials, in making out ques- 
tionnaires and schedules. He should acquaint himself 
with the best methods of rounding off figures or smooth- 
ing his lines for visualizing results. There are questions 
in tabulation and in the summation of results, in the mak- 
ing of graphs and diagrams ; and so on. Such matters 
deserve careful attention, especially if accuracy or in- 
ference is nowhere a vital issue. But what statistics 
is chiefly concerned with is measurement. The outstand- 
ing topics of a statistical treatise will always be units or 
classification, a counting of variation and frequency, the 
use of averages, the analysis of dispersion, and a correla- 
tion of events for inferential needs. When principles for 
these have been laid down, the further question of the 
validity of statistical induction has already been answered 
in large measure. 

A definition of units Is important for the same reason 
that makes it so important in all scientific work. We 
" Keynes, J. M., "Treatise on Probability," ch, 27. 



THE METHODS OF SCIENCE 217 

must have standards and classes for comparison. Scien- 
tific methods always turn on inclusion and exclusion. 
Classification invariably is the beginning as well as the 
end of researches. It may be indifferent to us whether 
we call our units for measurement objects or events or 
propositions. But there must be no doubt about the 
nature of the thing to be measured and correlated with 
other things. Consistency in definitions is essential. Uni- 
formity of selection is a first guarantee of success for 
later comparisons. Yet an element of arbitrariness cannot 
be avoided. Though not all definitions are postulates, 
statistical units frequently are no more. What wages 
are, e.g., or what constitutes a clear sky, or what a death 
from cancer is, or what should be our definition of a 
"psychic trait'* — these are questions answerable only by 
agreement, without reference to known correlations. 
Again, magnitudes lose continuity by being classed. Dis- 
creteness and continuity are always vexing factors when 
nicety of calculation is required. We may need com- 
posite classes such as index-numbers in measuring costs 
of living; or we may let averages serve as units whose 
composition can only be roughly homogeneous. In any 
case the definition of units is a consequential step, and 
this the more so since the counting of many of them may 
aggravate the evil of a faulty classification. 

Counting however is necessary because of the varia- 
bility of our data. Indeed, statistics might be defined as 
the counting of classes of events and their numerical 
comparison. While natural scientists may rely upon a 
single occurrence — as they have demonstrated again and 
again — statisticians must place their faith in a law of 
large numbers, in endless repetitions and the measurement 



218 A CRITIQUE OF ECONOMICS 

of relative differences among members of a class. In 
fact, they must count in two directions. For there are, 
first, magnitudes whose differences may be put into or- 
derly array for one purpose, and there are, secondly, fre- 
quencies for each member of the line-up which may be 
wanted for quite another purpose. Measurement con- 
cerns both differences of magnitude for a given group of 
classes, and differences in the number of recurrences for 
each member of such a group. An incidental result of 
such variations is the need of interpolations and of a 
smoothmg of curves, where the events are counted only in 
part, or where for one reason or another they do not ex- 
ist. But the principal task will be the determination of 
how much must be counted for a proper diagnosis of fluc- 
tuations. What differences to ignore and which to include, 
and how to find the total frequency or frequencies for 
particular temporal and spatial units, that is the chief 
problem ! The time element may complicate it appre- 
ciably, as the makers of index-numbers know. The choice 
between moving and fixed bases and averages may be as 
difficult as it will prove important in the end. Our notion 
of relative magnitudes and frequencies is materially af- 
fected by the scope of our measurements and by the choice 
of series of events happening in time. Histograms and 
ogives and historigrams therefore must be referred back 
to our definition of classes and principles of counting, 
especially where socio-economic phenomena are compared. 
Averages ^^ apparently simplify the situation, but at 

" For recent statements on value of averages see Carver, H. C, in 
Quarterly Publications of American Statistical Association, 1921, 
p. 721. See also: Mitchell, W. C, in Bulletin 284 of Bureau of 
Labor Statistics, October, 1921 ; Zizek, F., "Statistical Averages" 
(transl. by Persons, W. M.), 1913. 



THE METHODS OF SCIENCE 219 

last analysis they prove merely that we are satisfied with 
something less than the utmost possible accuracy. They 
are used because of the limitations of our eyes and of our 
mind, and on assumptions which cannot be demonstrated 
in the great majority of cases. For the average, as sta- 
tisticians commonly construct it, is a condensation of 
fluctuations, or the elimination of minor fluctuations whose 
real share in the frequency of any one event may be dif- 
ferent from what we believe. What may be called a bare 
numerical average is relatively insignificant in statistical 
work. To say that the average of the sum of three, five, 
and seven is five, means little if we have colorless magni- 
tudes such as mathematics or formal deduction to manipu- 
late. But if we count real things and events in the out- 
side world, related to many other classes of events and 
modified by them from time to time, an averaging involves 
almost certainly a disregard of some facts. In the words 
of the logician : causal relations are misrepresented. The 
interconnections of each event or of each series of events 
per class are partly ignored, partly shifted in space and 
time. Some relations are magnified, others neglected. 
The irregularity of statistical relations and recurrences 
leaves no other conclusion. Statistical as functional 
averages, hence, are a makeshift whose advantages are 
often off^set by weaknesses that are real, even though not 
measurable. Or to put the matter diff^erently : With the 
exception of the median, averages are artifices. They are 
products of a creative mind. Like laws of nature they 
are compounds of something objective and something else 
that is strictly subjective. They are marred by the lia- 
bility to error which characterizes all human acts. Nature 
knows individuals and relations, but it does not know 



220 A CRITIQUE OF ECONOMICS 

arithmetical or geometrical averages, or even the 
mode. 

The limitations of the average are, to an extent, ad- 
mitted by statisticians when they calculate the dispersion 
of frequencies and its co-efficients. For here we find one set 
of items in an array of magnitudes used to qualify our 
estimate of another, or to qualify the average itself which 
represents the whole group. Dispersion is of individual 
differences as well as of their relative frequencies. It 
amounts to an attempt to consider individuals in spite 
of the fact that large numbers are necessary for a dis- 
covery of regularities. We decide at first to lump in- 
equalities, to ignore minor variations, but forthwith com- 
pare frequencies for sub-groups within a given series so 
as to obtain a clearer picture of the entire situation. 
Averages serve as a standard for measuring deviations 
which in their turn throw light on the true value of these 
means. Absolute and relative deviations thus have in- 
creasingly engaged the attention of students. Ideal 
curves of "error," i.e., of dispersion away from the type 
must be corrected by actualities that the Gaussian figure 
did not originally cover. Irregularities of diverse sorts 
remain to be ascertained according to the nature of our 
subject, and this skewness is expressed in terms of the 
difference between several sorts of averages found for our 
series of events. Quartiles and decils gain significance 
in localizing movements away from a standard distribu- 
tion, while coefficients become valuable for practical ap- 
plications such as insurance companies or economists de- 
sire. But in these refinements of measurement some "er- 
rors" must after all be overlooked, and their ultimate 
sources remain obscure. That is, coefficients of every 



THE METHODS OF SCIENCE 221 

sort are makeshifts because they point back to definitions 
of average which are essentially subjective. Variations 
cannot be measured and correlated perfectly. Differen- 
tials in appreciable proportion escape our vigilance, par- 
ticularly where time is a factor in our reckonings ! 

Statistical correlation, too, compares unfavorably with 
the results of natural science because of the range of 
variability of events. Yet it constitutes the main object 
of all measurements, as already shown. The great bulk 
of statistical inquiry aims at correlations of one class or 
another. In ordinary frequency measurements the cor- 
relations are implied rather than consciously sought; but 
of recent years the other kind — what may be termed spe- 
cific correlations — have come in for their share of recog- 
nition. 

All frequencies are akin to correlations because they 
refer to definite classes of events, each of which comprises 
in reality a number of things or other events. This fol- 
lows from the secondary nature of our statistical units, 
from the fact that the units are compounds or event- 
complexes whose composition is partly unknown to us. In 
speaking therefore of a death-rate or of the turning-up 
of a certain number when throwing dice, or of the fre- 
quency of a given income or of the distribution of ages 
in a population we are necessarily establishing a corre- 
lation. We do not think of it as such chiefly because of 
our definition of the class. There is only one variable 
distinctly pointed out, and so the others are forgotten. 
In specific correlations, however, two or more specified 
variables are compared. They belong evidently, or so 
far as we know, to allied groups of relations — of what 
are usually styled causal relations. Hence correlation in 



222 A CRITIQUE OF ECONOMICS 

the narrow sense aims at a discovery of these common 
interdependencies. Their quantitative manifestations are 
studied. Reenforcing and counteracting events engage 
our attention and yield positive or negative correlations 
of varying degrees. Qualitative correlation concerns the 
degree of regularity with which sympathetic movements 
of two or more variables recur. Quantitative correlations 
show the ratios of variation for our variables, for which 
a "coefficient" may be found exactly as in the case of dis- 
persion. But it must always be borne in mind that coef- 
ficients depend upon prior computations, definitions, and 
assumptions whose value is in part uncertain. To have 
measured exactly a degree of relative fluctuations and 
frequencies, in time or out of time, for two or more 
variables is not to have proven the correctness of the 
premises with which we started out. The very fact that 
we may adapt different kinds of coefficients to different 
uses, as we do with averages, should remind us of the 
purely descriptive function of such terms. Correlation 
as a description of numerical variations which are more 
or less proportionate is a safe procedure. The rub comes 
when we infer from such matters of record the course of 
similar future events ! 

Statistical Induction. — Statistical induction, as re- 
marked before, must not be confused with descriptive 
statistics. The latter deals simply with measurements, and 
measurements for present purposes may be called view- 
points. We may vary our estimate of statistical events 
because they are studied collectively, in large numbers, 
and for the most part as quantitative changes. On this 
account several modes of measurement are permissible 
and net us different viewpoints of one and the same object 



THE METHODS OF SCIENCE 223 

or situation. Successive measurements by different aver- 
ages and coefficients, for different series of like events, 
correspond to a set of impressions we get by approaching 
a landscape from different angles. We cannot view the 
whole at once; neither can we reconcile all the features 
displayed in our several approaches. But as long as we 
content ourselves with what we do see, making no predic- 
tions, all is well. It is only when we infer from the pres- 
ent to the future that difficulties arise. 

Before considering briefly, however, this inductive prob- 
lem of statistics, let us first revert to two points of old 
standing. Let us remember that causality is not a fact 
distinct from regularity of connection, and that the proc- 
ess of inference is everywhere the same, whether we are 
business men, scientists, or philosophers. 

Since causation is merely another word for regularities 
of recurrence, statistical regularity of frequency or cor- 
relation must be just as causal as laws of nature. Causes 
and effects are simply terms for specific antecedents and 
consequents or members in a coexistence. Nothing else. 
True however that absolute constancy of relations does 
not exist in the fields explored by statistics, and that to 
this extent causes or effects are only partally designated. 
And still more to the point: Connections must show a 
minimum of regularity before we shall attach any "causal" 
significance to it. That is, we shall not infer anything as 
to future recurrences until on the principle of Sufficient 
Reason, allowing for error, we feel justified in calling a 
certain frequency causal. Where this is not possible 
"chance" correlations may be said to exist which are not 
really causal. We might for instance notice the birthrate 
of a certain country to rise in the same proportion that its 



224. A CRITIQUE OF ECONOMICS 

paper currency expands. Or we might be struck with the 
fact that in dealing cards the tallest men got most of the 
aces. Such numerical correlations would by most people 
be called accidental, meaning non-causal. Coincidence or 
chance would be held responsible. But if we inquire seri- 
ously into the problem we shall of course learn that these 
correspondences between two or more assignable variables 
do not last. They do not repeat themselves ; in other 
words, there is really no constancy of relations qualita- 
tively or quantitatively viewed. Though we do not ex- 
pect perfect regularity of recurrence, though we know 
that a virtually infinite "plurality of causes" prevents 
our finding all those antecedents which most commonly go 
with other specified consequents — yet our general experi- 
ence prompts us to reject the above mentioned correla- 
tions as "causal." We grant that regularity is insuf- 
ficient, and declare it to be so because of our ways of 
reasoning which underlie all our logic. The possibility of 
statistical causation however is not affected by this in- 
sistence upon a minimum percentage of constancy. The 
complexity of our statistical units explains why we are 
satisfied with less than perfect regularity. But in gen- 
eral, statistical relations are no less nor more truly 
"causal" than laws of nature. 

Laws of nature indeed are nothing but correlations of 
a particular sort. "It is this conception of correlation 
between two occurrences embracing all relationships from 
absolute independence to complete dependence, which is 
the wider category by which we have to replace the old 
idea of causation." ^^ The inherent mutability of organic 
and social e\ents therefore accentuates the difficulty of 
" Pearsons, K., "Grammar of Science," edit, of 1911, p. 157. 



THE METHODS OF SCIENCE 225 

finding those unexceptional recurrences which are peculiar 
to strictly physical connections. Statistical units are not 
only complex. They relate also to processes which can- 
not be reduced to purely mechanical terms, to purely 
quantitative changes. Their dynamic character forbids 
it. We must abstract by ignoring classes of events as 
well as certain frequencies of occurrence. Time itself is 
a factor of utmost importance in tracing ultimate 
"causal" relations, for "everything in nature is appar- 
ently in a state of continuous change, so that what we 
call one 'event' turns out to be really a process. If this 
event is to cause another event, the two will have to be 
contiguous in time; for if there is any interval between 
them, something may happen during that interval to pre- 
vent the expected effect." ^^ Specific causality indeed is 
regularly concealed from us in statistical measurements 
because of this time factor and our lax definition of it. 

Inference however does not stop on that account. In 
all studies we must reason and employ principles which 
are the stock-in-trade of logicians. Statisticians too de- 
pend upon a routine of inference which is, in fundamentals, 
exactly like that of the laboratory student. Our meas- 
urements of diiferences and frequencies are guided from 
the start by certain definite purposes and assumptions. 
They may not be succinctly stated, but they exist. Our 
hypotheses furthermore are influenced by our previous 
knowledge of similar relations, or simply by associations 
of sound and symbol. We cannot do entirely without 
intuition. We must act on judgments for which no im- 
mediate justification may be at hand. We use the prin- 
ciples of Enumeration and of Substitution. We resort to 

" Russell, B., "Analysis of Mind," 1921, p. 94. 



226 A CRITIQUE OF ECONOMICS 

reasoning from analogy, since all induction harks back 
to such comparisons and classifications according to re- 
semblance and difference. We measure variables and their 
more or less constant relative changes with hopes of veri- 
fying our results now or later. Changes in the range of 
our series, in the counting of frequencies and in our defi- 
nition of units are the outcome largely of such tests or 
a cross-reference. Whatever steps may be taken by the 
physicist in directing his researches and unifying his re- 
sults, are proper also for the statistician. The difference 
between the two kinds of investigation does not lie in the 
inferential process itself, but in the varying degree of 
certainty attending their conclusions. Induction and de- 
duction, hypothecation and verification, an imputation of 
causal values, and the role of intuitive insight — these are 
always the same. The grounds for generalization only 
differ. 

Statistics consequently is intimately bound up with 
problems of probability. Aside from the psychological 
aspects of probability or expectation *^ there are mathe- 
matical and empirical-objective phases in statistical in- 
duction that must interest the social scientist fully as 
much as a mathematician. But let it be understood right 
here that at bottom it is a question of logic we are con- 
fronted with, not one of mathematical technique. 

Mathematical theories of probability treat partly of 

social events, but not mainly so. A priori probability 

presupposes conditions which are not usually fulfilled in 

empirical statistics. It builds inferences deductively on 

a priori "knowledge of possible and favorable conditions." 

" Keynes, "Probability," chs. 1-2. See also Jevons, W. S., "Prin- 
ciples of Science," 2d edit., p. 199, and Bode, B. H., "Outlines of 
Logic," 1910, p. 154. 



THE METHODS OF SCIENCE 227 

It assumes that "all cases must be equally likely to oc- 
cur,'* ^^ and reckons with few classes of events as possi- 
bilities. Whether the a priori probabilities of causal com- 
plexes are equal or unequal, generally speaking the num- 
ber of factors involved is very small. A postulate of In- 
sufficient Reason or of Indifference may be invoked, but 
its force will depend upon the nature of materials used. 

In the majority of cases, and especially in the study 
of socio-economic conditions, an empirical a posteriori 
type of induction is imperative. The final problem is : 
How closely do mathematical probabilities and statistical 
frequencies agree? Is the status quo, is past experience 
a key to future happenings and numerical constancies, or 
must all predictions be taken cum grano salis magno? 

As is well known, statistical inquiry has proven the 
existence of a law which, to a gratifying degree, justifies 
some sort of generalization from known frequencies. A 
Law of Large Numbers or of the Stability of Statistical 
Frequency does manifest itself in most fields, so that 
treatises on probability have more and more gravitated 
about a few standard theorems developed during the 
eighteenth (and early nineteenth) century. The employ- 
ment of samples as averages rests directly on this cir- 
cumstance. We meet here with a new aspect of the prin- 
ciple of Sufficient Reason and arrive conversely at a Rule 
of Successions which says : "As the number of instances is 
increased, the probability that an event q is in the neigh- 
borhood of q* tends toward certainty; and hence, subject 
to certain specified conditions, if the frequency with which 
B accompanies A is found to be q' in a great number of 

" Fisher, A., "Mathematical Theory of Probability" (transl. by 
Miss Dickson, Ch,), edit, of 1922, p. 18. 



228 A CRITIQUE OF ECONOMICS 

instances, the probability that A will be accompanied by 
B in any further instance is also approximately q'.'* ^® 
But is this inference necessarily safe? Do large numbers 
— however defined — guarantee recurrences in a high per- 
centage of future cases? Does statistical induction ap- 
proximate that of experimentation? 

In general the answer might be stated in the words of 
a competent critic as follows: "To argue from the mere 
fact that a given event has occurred invariably in a thou- 
sand instances under observation, without any analysis 
of the circumstances accompanying the individual [italics 
mine] instances, that it is likely to occur invariably in 
future instances, is a feeble inductive argument because 
it takes no account of the Analogy" ^'^ binding such in- 
stances. In other words, though we may ground our in- 
ductions upon assumptions of a finite world and a finite 
number of possible combinations of events, whose rela- 
tive weights and affinities are determinable,^^ yet the un- 
certainty of future empirical frequencies remains. In- 
ference is risky, for one thing, because "where an effect 
is quantitative, and there are a number of contributory 
factors which one way or another influence its amount, 
fluctuations in these do not necessarily stand out in the 
results." ^^ Again, it is risky because we are dealing 
usually with an indeterminate number of classes of events, 
and because our temporal and spatial units are frequently 
ill-defined. There are many probabilities, and the prob- 

»« Keynes, "Probability," p. 388. 

"Ibidem, pp. 367, 392, and 111. For a similar view see Campbell, 
N. R., "Physics," 1920, ch. 7, and pp. 212-14. 

« Keynes, "Probability," p. 258. See also Fisher, A., "Mathematical 
Theory of Probability," p. 172, and Sigwart, Ck, "Logik," 4th edit, 
vol. 2, pp. 706-07. All three references show attempts to find a 
final, logical basis for statistical induction. 

"Joseph, "Logic," p. 558. 



THE METHODS OF SCIENCE 229 

able values of the existence of events favorable to a sec- 
ond or third event differ materially. At any rate they 
are unknown. Again, our statistical series are for the 
most part heterograde in that individual events possess 
assigned attributes in varying degrees, besides being per- 
haps heterogeneous in other respects. Thus the assump- 
tion of equally possible cases is out of place. We might 
define them as "cases in which we, after an exhaustive 
analysis of the physical laws underlying the structure of 
the complex of causes influencing the specific event, are 
led to assume that no particular case will occur in pref- 
erence to any other'* ; ^° but little is gained thereby. It 
is here as with standard curves of error which were once 
held to dominate all kinds of relations. We shall find 
them often, but not always. Skewness of dispersion must 
also be taken care of. "The typical frequency curve in 
all vital, social, or economic statistics is always the bi- 
nomial one; but it will require much investigation . . . 
to prove whether this supposition is right, or under what 
conditions the observations will show a tendency to the 
binomial law." ^^ 

The drift of statistical induction has therefore been 
strongly toward a study of individual series of events 
and their respective frequencies. Increasingly the prin- 
ciple of relevance and analogy has been honored in the 
formulation of statistical laws. Instead of ideal curves 
of error we discuss curves for particular classes of events, 
relative to particular temporal series and to averages 
selected beforehand. The necessity of subdividing large 

*» Fisher, A., "Mathematical Theory of Probability," p. 9. 
"^ Westergaard, H., "Scope and Method of Statistics," in Publica- 
tions of American Statistical Association, 1916-17, p. 251. 



230 A CRITIQUE OF ECONOMICS 

blocks of variations and frequencies has suggested itself. 
Lexian series have come to the fore and modified our earlier 
views of the value of mathematical probability. Thus the 
best method for inference is said to consist "in breaking 
up a statistical series, according to appropriate prin- 
ciples, into a number of sub-series with a view to analyz- 
ing and measuring, not merely the frequency of a given 
character over the aggregate series but the stability of 
this frequency amongst the sub-series. That is to say, the 
series as a whole is divided up by some principle of classi- 
fication into a set of sub-series, and the fluctuations of 
the statistical frequency under examination between the 
various sub-series is then examined." ^^ Concessions of a 
logical order are thus made frankly by men who pretend 
to statistical induction. 

Limitations should be admitted the more freely since 
much depends upon averages and coefl5cients which are the 
commonest starting-point for generalizations. Averages 
may beg the question whenever they are functional rather 
than numerical. As a modern authority states the case: 
"If masses of items, which have evidently been variously 
influenced by quite independent causes, are taken together 
in a series, the average so computed has little scientific 
value since it does not express the activity of a unified 
complex of natural or social causes, and is as a rule poorly 
adapted to purposes of comparison." -^ Offhand this 
may seem a special problem in the construction of aver- 
ages, but in reality it opens up the much larger question 
of statistical induction for any group of events. All 

^ Keynes, "Probability," p. 392. 

"Zizek, F., "Statistical Averages" (Persons, W. M.), pp. 65, and 
60-120. 



THE METHODS OF SCIENCE 231 

measurements of deviations, all coefficients of dispersion 
and correlation,^* all index-numbers or similar composites 
point to shortcomings that react adversely upon inference 
as to the future. Assumptions meet us everywhere. Sins 
of omission are probably greater than those of com- 
mission. We are careless of time-lags and minor quan- 
tities of variation. We rely upon large numbers when 
the definition of "large" is arbitrary. We classify events 
without making sure of their exact component correlates ; 
and we ascribe virtues to ratios which are derivative rather 
than primary and securely founded. 

Conclusion on Statistics. — In short, if a final estimate 
of the validity of statistical induction may at the present 
be ventured at all, it must be with the utmost caution. 
We should conclude that grounds for inference exist, and 
that its full value for social sciences has not yet been ascer- 
tained, but we should also emphasize its inferiority to 
experimental generalizations. On all counts statistics 
falls short of the standard set by the method of natural 
sciences. 

Reflection as Third Method. — ^What was on another 
occasion called the method of Reflection gains therefore 
in importance, even though it seems at first thought very 
unsatisfactory. It must always be accorded a place in 
scientific work because the universe is more than a play of 
mechanical forces, and because the problem of values of 
all sorts diflfers radically from that of kinetics. 

** A conservative view of the inferential value of coefficients of 
correlation, with special mention of the Pearsonian, is given by 
Bowley, A. L., "Elements of Statistics," pp. 316-35, and by Keynes, 
J. M., "Treatise on Probability," pp. 421-27. See also Boas, F., 
"The Coefficient of Correlation," in Publication of American Statisti- 
cal Association, 1919-20, p. 683. 



232 A CRITIQUE OF ECONOMICS 

In reflection counting is subordinated to a correlation 
of values, and quantitative to qualitative analysis. We 
are still concerned about units or events, and we have 
again complexes of a high order before us, precisely as 
in statistics. But the success of our method does not 
depend upon fine measurements. Sometimes individual 
events will be evaluated, sometimes groups of them. For 
some purposes the magnitudes discovered by natural sci- 
ence or statistics will be revised because of intuitional 
judgments or an exercise of freedom that grants more 
to "moral" convictions than an exact reasoner can ap- 
prove. Yet the usefulness of the method of reflection has 
been demonstrated sufficiently. It serves well wherever 
a quantitative analysis of relations is admittedly negli- 
gible or out of the question. 

In historiography the description of particulars plays 
a notable role and with rare exceptions does not terminate 
in the formulation of laws. Granting these special cases, 
however, we do well to emphasize the generalizing side of 
reflection. For the most part we seek not merely "causal" 
relations, that is regularities of details, but also funda- 
mental principles and systems of relations. Our material 
is taken from the living surroundings, from the sphere of 
hard facts which we ourselves, or others, gather for an 
evaluation. Reflection thus is more than reasoning of a 
formal sort, since our premises cannot be altogether arbi- 
trary ; nor can our conclusions stand irrespective of testi- 
mony to the contrary. Formal logic is not a field for re- 
flection as here defined and discussed, however true it be 
that, loosely interpreted, reflection forms a part of all 
inquiry and of all sciences. It is facts that reflection is 
interested in, exactly as experimentation or statistics is. 



THE METHODS OF SCIENCE 233 

Number and order as such do not provide the kind of 
problems that we can solve only by our third method of 
science. But whenever the conditions above mentioned 
are fulfilled, whenever the factual relations are to be 
treated qualitatively more than quantitatively, whenever 
the data directly before our senses do not constitute our 
subject matter, or at least only a portion of it, and when- 
ever our units for correlation and generalization operate 
independently of the laws of change which basic natural 
sciences have brought to our attention — then a field is 
open for reflection. 

Reflection, in any case, is not exempt from the routine 
of experimentation and statistics. Like them it also 
resorts to observation, even though much of it consists of 
memory and recall, aroused with or without stimulation 
from the outside world, and of records transmitted by 
others, culled from documents or books, or passed by word 
of mouth. Furthermore, like these more familiar methods, 
reflection involves comparison, analysis, classification, 
subtraction and addition by way of mental review, and 
a balancing of premises and conclusions not all of which 
find our approval in the end. Hypothecation, deduction 
and induction; allowances for error of fact or fancy; a 
rough gauging of magnitudes in so far as we picture them 
or give them numerical expression; a search for general 
denominators under which we may subsume all the data 
deemed relevant and weighty — all this is comprised in the 
third method which, while combining parts of experimen- 
tation and statistics, is yet different from them. 

Creeds and viewpoints, to be sure, will determine the 
choice of our materials more than in the laboratory, par- 
ticularly since verification by and to the senses is gen- 



234 A CRITIQUE OF ECONOMICS 

erally out of the question. But on the other hand, reflec- 
tion calls for special qualifications the possession of which 
is a prerequisite to attainments of a high order. In the 
discharge of those duties which fall peculiarly to the man 
of reflection many traits must be higlily developed whose 
value few might suspect. There must be breadth of 
knowledge and an excellent memory ; a power for abstract 
thinking whose prime test is imagination and intuition 
paired with the ability to see differences and resemblances 
slight in degree and distributed over a large range of 
events ; patient care in rehearsing facts and a conscien- 
tious regard for the happenings of the day, whether they 
be trifles or portentous signs and symbols. Whatever the 
problem we launch upon, in reflection we must display a 
truly scientific spirit or forfeit the chance of adding to 
knowledge. Theorizing may enter conspicuously into our 
work. Systems we may evolve and explain away as we 
please. But in essence our procedure must be like unto 
that of the natural scientist, lest great possibilities remain 
unexploited. 

The possibilities are extraordinary because contrary to 
popular opinion the scope of experimental and statistical 
inquiries is narrowly circumscribed. The achievements of 
physics and chemistry have blinded us to the limitations 
of its technique ; but that doesn't make them any the less 
real. Not all natural sciences rely exclusively or mainly 
upon the laboratory method. Geology and biology for 
instance must proceed largely by reflection, or relinquish 
the hope of ever understanding some most important ques- 
tions ; and so likewise psychologists. Wherever verifica- 
tion by the senses is impossible or quantitative measure- 
ment less helpful than a qualitative correlation of events, 



THE METHODS OF SCIENCE 235 

there introspection has its place and will necessarily be 
accepted as a fair substitute for exacter knowledge. The 
philosophers in particular therefore have relied preemi- 
nently upon our third method, although social scientists 
have not been far behind them in this respect. And all 
things considered the results have not been meager. On 
the contrary, most of our current interpretations of the 
chief values of life have been attained by reflection coupled 
with statistical inquiries as a prelimniary or last step. 
Our view of reasoning and the nature of human knowl- 
edge, what we believe with regard to history and socio- 
economic processes, our systems of logic or of Marginism 
in economics, the leading doctrines of socialism and other 
reform movements, tenets in religion and ethics — all this 
and more springs from reflection as a distinct method for 
systematizing data and basing conclusions upon them. 
Its shortcomings of course are almost self-evident and not 
of a sort to be obviated by diligent application. We need 
never deny this. But none the less the virtues of reflec- 
tion outweigh its vices. Used by a master mind it will 
produce results that have no superior even in the most 
fruitful of natural sciences : in physics and chemistry. 



CHAPTER NINE 
THE METHODOLOGY OF ECONOMICS 

What is a Science? — If what has so far been said on 
the subject of inference, law and causation and the basic 
methods of science is in the main correct, the discussion 
of the methodology of some one science like economics may 
be kept short without impairing greatly its usefulness. 
It must follow from the general facts just stated what the 
scope and method of a special science is, or to be more 
precise, how we are to proceed in deciding upon its field, 
modus operandi, and worth as a pursuit of generalized 
knowledge. The content of general methodology, how- 
ever distinctive in parts, must be in essence like that of 
any one specified science. It is only the fact that ques- 
tions arise under a new name, as for instance whether 
economics is a science, or how it is related to other social 
studies, or what particular mode of meaGuring magnitudes 
is best adapted to it — it is only as these new queries arise 
that we are prone to think of each science having a 
methodology of its own, determined largely by a body of 
peculiar facts. 

The question, e.g., whether economics is a science in- 
volves the broader one: What is a science anyhow .f* And 
here our answer may vary according to the rigor of our 
standard. Or we may candidly admit that definitions are 
often no more than an agreement without reason other 
than that of expediency. 

236 



THE METHODOLOGY OF ECONOMICS 237 

Of course, that science is not merely knowledge, or an 
act of learning, has regularly been pointed out. We can- 
not allow the term "science" to be used so vaguely, if it 
is to serve any special purpose. We may grant that 
knowledge of many kinds is valuable and has been ac- 
quired according to principles clearly indicated and com- 
mendable to reason, but this of itself does not give us a 
science. More is involved than a mastery of facts or a 
routine of learning. 

For the most part students have therefore sought to 
define science along two lines, stressing either the nature 
of the results, or the kind of methods used in obtaining 
them. Thus if we rely chiefly upon methods, it may occur 
to us that men are not scientific unless they proceed by 
experimentation, adopting the laboratory kind of meas- 
urement as the road to success. But would not this re- 
strict the use of the term science unduly, to the exclusion 
of fields which have proven of utmost importance to us 
both theoretically and practically? For as has already 
been shown, there are not many sciences that can accom- 
plish everything with the experimental method. Contrary 
to a popular belief there are so many other subjects not 
adapted to it that science and experimentation can hardly 
be considered synonymous. 

In so far as method is any test, then, we must think 
either of the laboratory or the statistical principle of 
measurement in defining our term. Both kinds of method 
have given us valuable results, and both aim at similar 
ends, though it may not always seem so. Whether a care- 
ful reflection on facts, such as philosophers and many 
social scientists have practiced in developing their sys- 
tems of thought, should likewise be a proof of scientific 



238 A CRITIQUE OF ECONOMICS 

work, may here be left in abeyance as a question that 
it is difficult to answer. For who can tell when reflection 
is sufficiently methodical, and when its results are in any 
degree comparable to those reached by the other methods ? 
Evidently, no matter how conscientious our weighing of 
arguments and facts, or our review of the primary rela- 
tions submitted by scientists, it will be next to impossible 
to guard our steps as carefully as may be done in employ- 
ing the two other methods. At the best we could argue 
that science is a spirit as much as a procedure, and that in 
so far as men aim at truth regardless of consequences, 
judging without bias and holding themselves aloof from 
any temptation of personal advantage — that to this ex- 
tent every thinker may be a scientist. Yet one may rea- 
sonably object to having the term science construed so 
liberally, as long as a far better test is available. 

Thus, the most characteristic feature of scientific 
knowledge, and hence of science itself, is undoubtedly a 
body of theorems descriptive of permanent relations which 
provide a dependable ground for predictions or prac- 
tical applications. Inquiries are scientific, from this 
standpoint of results, if they aim at a systematization of 
individual facts, ordering them into interdependencies that 
have objective validity, or at any rate seem to be real so 
far as circumstantial evidence of diverse kinds can justify 
such a belief. An inquiry is in eff*ect a science, we may 
say, if it stresses correlations more than particulars, or 
if it connects these relations with an outside world of 
things and events of which our senses have some direct, 
primary knowledge. In so far as we make event-com- 
plexes and their constitutents, rather than abstracts of 
our imagination, the subject for examination, in so far 



THE METHODOLOGY OF ECONOMICS 239 

are we scientists if regularities of sequence or coexistence 
are discovered. The regularities may be absolute or rela- 
tive; they may read like a first law of thermodynamics, 
or like a law of wages verifiable by a given amount of facts. 
In either case, and regardless of whether we have been 
experimentalists or statisticians, our claim to the title sci- 
entist should be considered strong. A scientific spirit 
may actuate many Investigators. The powers of mind 
and of observation may be the very highest. But If our 
main body of facts is not focussed In laws that may be 
empirically tested, If description of Individual data pre- 
ponderates, and the conclusions are derived exclusively 
from explicit or implicit assumptions, our work is not. In 
an acceptable sense of the word, scientific. A science, in 
brief, is a body of knowledge organized into more or less 
verifiable generalizations or laws pertaining to physical 
or non-physical events, the determination of which depends 
almost entirely upon experiment or statistics. Mathe- 
matics consequently is not a science, albeit a field of meas- 
urement second to none in Importance. Nor can the 
philosopher be called a scientist, however precious the 
results that he offers us. 

True, however, that for most practical purposes It does 
not matter much whether we distinguish between science 
as here defined, and mathematics or philosophy or some 
other discipline. It is with the definition of the term sci- 
ence as with labels in general : If we know what's In the 
container the label is not necessary. All definitions are 
agreements, although the description they give us of the 
subject varies. The differences In the world about us are 
important, perhaps decisive for our weal and woe; the 
nomenclature we Invent to indicate these differences, a de- 



240 A CRITIQUE OF ECONOMICS 

tail. Though economy urges us to coin words ; though 
progress depends somewhat upon our symbols for iden- 
tification and differentiation; though nothing is more 
attractive than a nicely worded, exhaustive definition in 
an argument — the chief concern of every student must be 
his understanding of differences or likenesses. If we 
know that one field of investigation differs from another 
in certain assignable respects, and what the consequences 
of these differences for other ends, our terminology is 
no more than a convenience. 

On Social Science. — But granting that the term science 
is flexible, and that several tests for a science exist, what 
is to be said on the possibility of a social science, or of 
a science of economics? 

Some economists, and notably German economists, as 
was shown elsewhere,^ accepted the opinion of a lead- 
ing group of philosophers that there could be no such 
thing as a social science, or at any rate that law and 
causation were impossible in the sphere of social events, 
since will and purpose created an unbridgeable chasm 
between the constants of physical nature and the vari- 
ables of history. A distinction was made between realms 
where law reigned, and others where all events represented 
but the values of a feeling, planning, rational being. 
Between these two sets of facts a barrier was believed to 
exist, a barrier insurmountable and calculated to divide 
all pursuits of knowledge into two classes, viz., the ideo- 
graphic and nomothetic. It was asserted, and repeated 
by some economists, that a scientist aimed at the estab- 
lishment of types of events, while in the study of social 
events the particular necessarily absorbed our attention, 

^See ch. 1 of this book. 



THE METHODOLOGY OF ECONOMICS 241 

making impossible the formulation of broad principles 
or of laws in the exact sense of the word. 

What is to be said on this question, judging by facts 
previously considered? 

In the first place clearly, we must agree to the distinc- 
tion between physical and social laws. The eighteenth 
century attempt at uniting mind and matter for the pur- 
pose of extending Newtonian principles into the realm of 
psychics should not be pressed any further. It is evident 
from a variety of data that laws of social happenings, 
if they do exist, cannot be directly derived from the sort 
of associations which psychology studies, and for which 
a physiological explanation has, with some success, been 
offered. There is an indissoluble tie between mind and 
matter, but it does not allow us to identify the two, nor 
to stake our whole fortune on monism. Especially from 
a methodological standpoint is dualism an indispensable 
article of faith, a device by which we may hope to elimi- 
nate many of the errors characteristic of sensationalism, 
and without which human history can never assume a defi- 
nite meaning.^ 

But in the second place, this does not commit us to any 

such classification of science as Voluntarists have favored, 

nor to the other idea closely allied with it that events are 

either a problem for historians or for scientists, but not 

for both. It is illogical to divide all investigations into 

the nomothetic and the ideographic, for it follows from 

the nature of law and causation that one and the same 

^ For a present-day statement of the difference between psychic 
and physical laws see Russell, B., "Analysis of Mind," 1921, p. 301. 
On the dialectic of social process see, e.g., Schiller, F. C. S., "Studies 
in Humanism," pp. 438-39, and Wundt, W., "Logik," edit. 1895, vol. 
II, p. 510. For a monistic evolutionary naturalism see Sellars, R. W., 
in Monist, April, 1921. 



242 A CRITIQUE OF ECONOMICS 

material may be studied either for the types of recur- 
rences that it contains, or for the unique events which, 
apparently or really, owe nothing to law, and everything 
to will. 

No data are intrinsically "scientific" or "historical,'* 
since knowledge is non- representative in an epistemological 
sense, a product of mind rather than an objective datum. 
What is known of the processes of feeling, perception, 
imagination and reasoning strengthens this belief. Laws 
may obtain anywhere, since every theorem presupposes 
a knower no less than something knowable. It is not a 
law here and an isolated fact there that creates a science 
of physics or an historical narrative, but our determina- 
tion to view events from different angles, on the basis 
of certain assumptions, perhaps for specified purposes. 
Almost all objects and relations have a past, and hence 
lend themselves to an historical treatment. We may care 
about nothing else but this succession of individuals whose 
outer aspect shows continuity, and whose inner meaning is 
either determinism or free-will. However, we may also 
decide upon a search for regularities, of inter-relations 
that are as true to-day as yesterday, and as valid for the 
distant future as for the present. It will be for us to 
shape our inquiries accordingly, to select the data that 
do show such relations and degrees of constancy, and to 
hazard, on one ground or another, a calculation of prob- 
abilities. We may reject the associational theory of con- 
sciousness and of social events, and yet believe in the 
possibility of social laws. We may accept the doctrine 
of a human will which is at odds with the postulates of 
a mechanistic philosophy, and still be interested in a 
quest for social laws. Indeed, the statistical approach to 



THE METHODOLOGY OF ECONOMICS 243 

this subject has tended strongly to convince doubters. 
It is not dualism in any form that compels us to divide 
fields of research into two groups, but a particular va- 
riety of idealism whose zeal has overshot its mark. 

Put differently: There is reason for drawing a line 
between natural and social sciences, broadly taken, but 
hardly a reason for imputing objectivity and subjec- 
tivity to different sets of events. What impels us to 
make a distinction between physical and psychic or pos- 
sibly organic sciences is the undoubted fact that they 
represent two quite different kinds of units for correla- 
tion, for measurement. In the one group we have a few 
units definitely known, subject to observation with or with- 
out the aid of instruments, and measurable with a high 
degree of accuracy ; in the other we have a much larger 
number of units about whose homogeneity we cannot be 
certain, but whose unfitness for experimental isolation 
and variation is beyond dispute. Thus we generalize 
about the first as we dare not about the second class 
of events. We have a feeling that law is real in the 
one case, and out of the question in the other. We talk 
of causation as if it inhered in the physical data, forget- 
ting that cause and effect are names for items that con- 
stitute a law, and not anything else; or forgetting that 
all happenings are equally causal or non-causal accord- 
ing to our interpretation of terms. What differences exist 
between human and other events consist therefore not 
of the presence and absence of law, but of degrees of regu- 
larity and of definiteness of correlation, most social laws 
being in this sense "empirical," while physics or chemis' 
try may expect to reduce all types of interactions to 
exadt magnitudes and equations. 



244 A CRITIQUE OF ECONOMICS 

It is thus fair enough to speak of "tendencies" in eco- 
nomics and of rigid laws elsewhere, but we should under- 
stand, first, that the term does not mean an uncompleted 
action, and secondly that social laws represent in no wise 
a composition of forces, an average of arithmetical units, 
or a plus of psychics neutralized by a minus. The view 
which J. S. Mill took of empirical economic laws was 
colored by his belief in a mechanics of perception and 
ideation.^ It made him hope that a science of ethics 
and sociology had but to wait for a sufficiently thorough 
study of the laws of feeling and thought, in order to rival 
the attainments of the inductive sciences. 

Again, it follows from the nature of law and causation 
that economists must abandon all doctrines of imputation 
anent productivity and the price of services. Not only 
is it foolish to argue about the relative importance of 
agents operating jointly in the creation of a good or in 
the gratification of a want, but more especially must we 
reject an attempt at an ethical imputation. John Stuart 
Mill to be sure averred frankly that "when two condi- 
tions are equally necessary for producing the effect at all, 
it is unmeaning to say that so much is produced by one, 
and so much by the other. It is like attempting to decide 
which ... of the factors five or six contributes most to 
the production of thirty." ^ Yet this opinion, which 
probably every economist would have subscribed to as an 

"Find key to this in Mill, J. S., "Logic," Book III, ch, 10, §§5 
and 8; Book VI, ch. 7, § 1, and ch. 9, §§ 1-3, and ch. 10, § 3. 

•• "Principles of Political Economy," Book I, ch. 1, § 3. See also 
Gide, Ch., and Rist, Ch. (transl. by R. Richards, pub. by D. C. 
Heath & Co.), "History of Economic Doctrines," p. 519. See also 
statement by Veblen, Th., in paper read before Kosmos Club, Univ. 
of Cal., 1908: "Causation is a fact of imputation, not of observa- 
tion." 



THE METHODOLOGY OF ECONOMICS 245 

abstract proposition, did not deter many from laying 
down exact rules for finding the several individual parts 
of a joint product, or for assigning to specific parties so 
much of a share of income on the grounds of an imputed 
productivity. In questions of value no less than in ques- 
tions of physical production the principle of ascription 
found a prominent place. What Menger and Wieser 
among the founders of Marginism prescribed as logical 
devices for distributive analysis elicited the favorable com- 
ment of later writers. The uselessness of the plan was 
not fully realized except occasionally a propos of an 
ethical treatise; and the chief reason for this unwilling- 
ness to abandon imputation was probably the view of 
causation inherited from the eighteenth century, and 
transmitted in modified form to later generations by 
J. S. Mill. Certainly in economics his influence was para- 
mount. 

But to pass over now to a weightier topic in things 
methodological. 

How to Delimit the Scope of Sciences. — Economists 
have always been interested in a delimitation of their sci- 
ence, not merely because every scientist is likely to be, but 
also because of the nature of their subject matter. The 
relation between economics and other social sciences, or 
between either and psychology or ethics has regularly 
been discussed in the more pretentious European treatises. 
What then is to be our comment in the light of the leading 
facts of law and causation? 

As regards the sciences in general it will occur to us 
first of all that the organic and inorganic fields may well 
be kept distinct, even though an exact definition of life 
is hard to give. The social sciences may also be sepa- 



246 A CRITIQUE OF ECONOMICS 

rated from the natural, not in the manner suggested by 
the Voluntarists of Germany of whom something has 
just been said, but on the ground that man is the center 
of all experiential data and himself their only inter- 
preter. Furthermore, it is not unreasonable to arrange 
the fundamental sciences in a single progressive order, 
that is in a line beginning with the minimum number of 
concepts essential to research, and ending with the sci- 
ence which makes use of some of the basic concepts of all 
preceding sciences. We should thus have mathematics 
first, as dealing with spatial magnitudes and number, then 
physics which adds mass and motion in time, then chem- 
istry dealing with elements and compounds in transforma- 
tion, then biology as the field of life in forms lower than 
life and devoid of self-consciousness ; then psychology 
which uses many of the ideas just mentioned, in addition 
to self-conscious behavior; and finally the social sciences 
treating of inter-individual human relations, inclusive per- 
haps of melioristic valuations. 

Or we might essay a delimitation of sciences according 
to tangible objects studied, thus differentiating between 
astronomy, crystallography, botany, zoology, and geol- 
ogy. In a measure this principle would be satisfactory, 
provided we did not include all the sciences, nor think 
of special fields. For if we did we should notice that 
biology, e.g., embraces cytology, histology, bacteriology, 
and genetics; that the subject of man comprised psy- 
chology, history, and several social sciences, and that 
again histology covered botanical and zoological facts no 
less than those of human anatomy. Furthermore, we 
might remember the haziness of boundary lines at cer- 
tain points between chemistry and physics, or biology and 



THE METHODOLOGY OF ECONOMICS 247 

psychology, to say nothing of other less simple disciplines. 
So after all the identification of each science with a 
particular class of concrete objects perceivable by our 
senses would prove embarrassing, 

A better approach to the problem will be made if we 
start with an illustration something like this. Suppose 
we point to an oak tree and ask ourselves : What sci- 
ences, or how many sciences, have to deal with that object.'' 
We should then have to admit that such a single object 
may furnish food for thought to several kinds of investi- 
gators. Except that mathematics does not really treat 
of empirical facts, we could grant that a mathematician 
might use the tree for studying spatial relations of a 
certain class, say cylinders, cones, etc. A physicist would 
obtain possibly laws of gravity, light and color from it, or 
try to explain why the sap is able to rise against gravity. 
The chemist would have his compounds, their make-up and 
stages of metamorphosis ; the biologist a set of growth 
facts for morphology and pathology, etc. ; while an econ- 
omist could discuss value and cost relative to soil and 
site, or problems of reproduction. In short, one and 
the same item — in this case the tree — would become the 
concern of a number of scientists. 

What then is back of this significant fact.^* We must 
reply of course: Science studies relations rather than 
objects of common sense perception, and units following 
a mechanical law or expressable as functions of variables 
rather than things discrete in space. Each science selects 
types of units and of quantitative correlations, seeking 
as many instances of them as possible. We may conceive 
these units or groups of events as we please, describing 
them as seen directly by the eye, or analyzing them in the 



248 A CRITIQUE OF ECONOMICS 

manner of a chemist. But once we have chosen a certain 
class of units of inter-relations we shall be compelled by 
the facts to connect one instance with another, until grad- 
ually large numbers of laws or correlations are found, 
many of them to be subsumed under one general denomi- 
nator such as force and motion or gravitation, energy, 
etc. For the natural sciences all laws may ultimately 
focus in a single concept such as electricity or matter-in- 
motion, so that somewhere the several originally distinct 
inquiries blend indistinguishably. 

Other fields however will always be distinct, though 
comminghng with one another at certain points. No 
hard and fast lines can be traced because of the flux and 
complexity of the units involved. Time and space units 
being vague or incalculable, variability being part of 
the units and of the event-complexes, while conditioning 
phenomena with respect to each correlation escape meas- 
urement, it follows that a definite territory for every sci- 
ence cannot be mapped out. It may seem so at first, and 
a priori such clearly marked bounds may be prescribed. 
But as the data increase and are being classified more 
and more nicely according to frequencies or degrees 
of regularity, such dogmatism falls into disrepute. 
Especially where mass-measurements are the rule our 
nominally distinct fields of inquiry will overlap in places, 
or coalesce in spite of the arguments of logicians. 
Thus changes in the socio-economic environment will not 
be without effect on the scope of the science in question. 
If old facts disappear and new ones rise to the surface, our 
correlations will have to be revised accordingly. It need 
not be imagined that the units of the organic and social 
world studied by the method of statistics or reflection will 



THE METHODOLOGY OF ECONOMICS 249 

change objectively, or enter into new, more or less per- 
manent quantitative relations, without its reacting upon 
our sphere of inquiry. That is not likely. 

The Scope of Econoinics. — Thus, to illustrate the prin- 
ciple before touching upon the relation of economics to 
psychology and ethics, suppose we assume a very differ- 
ent set of economic data from those now surrounding us. 
Suppose for instance all things useful to man were plenti- 
ful, so that no work need be done voluntarily. Or sup- 
pose absolutely everything were produced to be sold in 
the open market, or on the contrary that nothing were 
so exchanged. Or again suppose that prices for all goods 
and services were fixed by the government. Would the 
scope of the economist's inquiry, would the nature of his 
correlations, would the existence of his science be af- 
fected? The answer must be in the affirmative for the first 
of our questions, but negative for the last. That is 
to say, owing to new data coming upon the scene and the 
old ones disappearing our qualitative and quantitative 
formulae both would look different, would be changed in 
composition, degree of regularity and perhaps perma- 
nency. We should have a new set of correlates and con- 
ditioning facts attending any one particular economic 
law. But economics as a whole would not be abolished by 
such substitutions of one regime for another. Some facts 
would remain as before. Men would still live by means 
of products and efforts. A residuum of activities would 
endure which could always be made the subject of a study 
to be known as economics — or anything else we like. 

Hence it is not impossible or illogical to assign to an 
investigator a select group of data for analysis and re- 
duction to types. We can always do this and pick out 



250 A CRITIQUE OF ECONOMICS 

any complex of events within our experience. But once 
we have given a name to a science of a particular type of 
facts, many additional data will belong to it and to no 
other science because of their factual measurable con- 
nection with the type of correlations selected. Thus we 
may decide upon a study of the facts of consumption and 
production, linking the first with biopsychological traits, 
and the second with the physical environment. The rela- 
tions and regularities inherent in these two sets of facts 
can hardly be imagined outside of life itself, and hence 
leave a minimum for investigation regardless of what al- 
terations are made in particular institutions. But how 
production and consumption are to be defined, what data 
in valuation, exchange, price and distribution or public 
control must be related with them — this is a distinct and 
subordinate question. Absolutely rigid limits cannot be 
set for a study of units and correlations as complex and 
unstable as those of human activities. There is no a priori 
ground on which we may condemn the exclusion of all 
non-exchange data. But neither can there be any ob- 
jection from another viewpoint for extending our inquiries 
over much more than catallactics. If men must have goods 
furnished freely by nature or procured by effort, if the 
use of such things mvolves ownership and further legal 
rights, if at a given time production implies certain modes 
of living, valuations and central control, then these event- 
complexes may be indissolubly intermingled with phe- 
nomena of exchange. There is nothing for us to do but 
to find out what regularities are lodged in such varieties 
of interrelations, and then to state the scope of economics 
accordingly. 

On account of the modern view of human nature the 



THE METHODOLOGY OF ECONOMICS 251 

catallactic analysis certainly is no longer in good odor. 
We are willing to acknowledge that man is more than a 
consumer or producer of scarce things, therefore plead 
for a broader conception of political economy. Yet it 
should not be supposed that psychology as a science is 
a prerequisite to, or logical basis of, economics ; for that 
would be a lapse back into a methodology altogether out 
of keeping with our present knowledge. Not the science 
of psychology, but a certain fund of psychological data, 
will prove useful to economists. Psychological aspects 
undoubtedly form part of their field of research. But 
it would be fallacious to argue from these to a closer 
relation between the two disciplines. Indeed, in one sense 
all facts are psychological, and in a second there is noth- 
ing psychological but it is gleaned partly from other sub- 
jects. The professional psychologist himself relies largely 
upon economic data for expounding his theorems, and his 
obligations to modern sociology stand out strikingly 
enough. But we should bear in mind at the same time 
that psychology deals with the individual, relates body 
to mind in the individual, or mind with mind among dif- 
ferent individuals as such, or is nothing but physiology. 
So it cannot very well be confused with economics which 
is interested in inter-individual relations regarding physi- 
cal events and rights and forms of behavior foreign to 
psychology. 

Neither should it be difficult to see a difference between 
sociology and economics,^ although between these two 

" On scope of sociology and its relation to economics there is a 
large, though chiefly periodical, literature. See among others the 
following: Durckheim, E., "Les Ragles de la Methode Sociologique," 
3. edit., 1904, p. 157 flF.; Spencer, H., "Study of Sociology," 1873, 
chs. 4-6; Giddings, F. H., "Prmciples of Sociology," 1896, Book I; 



252 A CRITIQUE OF ECONOMICS 

the line of demarcation is even harder to draw than be- 
tween economics and psychology. If we may judge by 
late developments in sociology, it links up more intimately 
with psychology than with economics, while on the other 
hand some topics are common to both sociology and 
economics. What is social psychology, sociology or psy- 
chology? That may be a baffling question. But we are 
safe in saying that sociology is to-day a better organized 
discipline than in Comte's age, and that economics is on 
the contrary not as sure of itself as a generation ago. 
What merits our attention chiefly is the strong tendency 
among sociologists toward qualitative analysis, while econ- 
omists incline increasingly toward a quantitative anal- 
ysis. That economists may learn much for their purposes 
from the sort of analysis exemplified in the latest socio- 
logical texts is quite certain; but that for this reason 
they should lose sight of their own peculiar realm is 
highly improbable. The sociologist may treat of all 
regularities or individual data within society, and so dare 
claim a very large field. Why not.'* But in so doing he 
is almost certain to touch upon facts which also concern 
the economist who studies a more specific and different 
type of correlation, namely one centering around facts 
of consumption and production. The complexity and 
variability of the units examined by social students is, 
once more, a major reason for a blurred boundary line 
between econamics and sociology. Yet the overlapping 
will be harmless; nor can sociology be said to provide a 

and Publications of Am. Sociological Society, December, 1990, pp. 
60-67. Small, A. W., "Meaning of Social Science," 1910, and Lect. 
II; and article on "Future of Sociology," in Pub. of Am. Soc. Society, 
December, 1920, pp. 174-93; and his "Adam Smith and Modern 
Sociology," 1907, pp. 198, 200, 237, 77. 



THE METHODOLOGY OF ECONOMICS 253 

logical indispensable groundwork for economists. There 
will be cross-references, but not a progression from the 
more general problems of one science to the less general 
of the next. 

The possibility and expediency of a distinction be- 
tween the several social sciences suggests itself still 
more clearly with regard to the relation between eco- 
nomics and politics or history or ethics. But since the 
first two have always been sharply defined we need con- 
sider only the ethical problem, which has often proved 
vexing. 

Economics and Ethics. — Economics was historically 
developed from ethics, and so it is perhaps no wonder that 
the question of the right relation between the two offered 
great difficulties, some deeming them worlds apart, while 
others felt them to be almost inextricably interwoven. 
It took centuries before the data of human life were effec- 
tually separated from Christian norms and moral judg- 
ments in general. As every economist knows, the divorce 
was not easily accomplished; nor was it at all certain 
at first that Adam Smith had broken resolutely with tradi- 
tion. The Physiocrats undoubtedly treated economic facts 
as facts only, inspired by ideas that were taken over in- 
directly from the physicists and physiologists. They 
naturally made of human events an expression of physical 
laws. Adam Smith however must have found the dif- 
ference between ethics and economics less momentous, and 
indeed made of his survey a theory of prosperity rather 
than a cold-blooded analysis of objective realities. So it 
was not until the beginning of the nineteenth century that 
economics was definitely sundered from all moral judg- 
ments, and raised to the rank of an independent science 



254 A CRITIQUE OF ECONOMICS 

that had a field as broad and yet clear-cut as any of the 
older disciplines. 

Again, the nature of the problem of ethics and eco- 
nomics was rarely stated in definite terms. What at first 
had seemed to be an easy distinction, eventually was 
beclouded by a failure to differentiate properly between 
an ethical judgment of facts and the origin of such ethical 
judgments. Some believed economics to be a moral sci- 
ence because they wished their subject matter to conform 
to an ethical standard.® Merely for this reason did they 
make out of economics a moral discipline. Others more 
or less vaguely discerned a difference between economic 
facts and moral norms, but confused Applied Economics 
with ethics, presumably because of the purposive element 
in such applications.^ A third group avoided these blun- 
ders, but only to make the mistake of deriving its norms 
systematically from social science. They understood ap- 
parently the issue, but identified human nature with the 
Ultimate Good in the manner of hedonists and the Brit- 
ish empiricists. Now, what must be our stand to-day on 
this issue, considering the history of both of economics 
and of researches elsewhere.'' 

As between the formalism of Kantian ethics and the 
content-ethics of other schools there is no doubt that 
the latter alone has so far met the test of inner consistency. 
Whenever the spirit of the thought or deed has been taken 

■A view expressed by Paulsen, F., "System of Ethics" (translated 
by Thilly, F.), p. 4. See also: Dewey, J., and Tufts, J. H., "Ethics," 
Part II, chs. 22-4; Stuart, H. W., in "Creative Intelligence," a 
symposium by several writers, 1917, p. 352; and Small, A. W., "Mean- 
ing of Social Science," pp. 327-39. One is reminded of the His- 
torical school of economists in this connection. 

'"Sociology as Ethics," by Hayes, E. C, 1921; Ellwood, Ch. A., 
"Sociology in Its Psychological Aspects," 1912, p. 40; Bernard, L. L., 
in Am. J. of Soc, 1919, pp. 298-325. 



THE METHODOLOGY OF ECONOMICS 255 

as the sole mark of goodness the question at issue has 
really been begged. A purely subjective norm of loyalty 
to duty or to conscience cannot carry the day unless we 
know beforehand that our sense of duty is of the right 
sort, our conscience an infallible oracle. To strive with 
all one's might toward the good, as intuited, is vain unless 
life itself is negligible or else the means toward its fur- 
therance given in the very mandates of our inner voice. 
Only then would a realization of the law be the whole 
of virtue, compared to which other ideals shrink into insig- 
nificance. 

But evidently this straight road to goodness cannot 
be taken by human beings who are not only weak-willed, 
but also devoid of the gifts which Kant and Spencer both 
credited them with. A formal ethics therefore must fall 
with a transcendental outlook. It fact, it has never 
succeeded even in the minds of its own sponsors, since 
sooner or later the question of content at least had to be 
answered. Precisely for this reason ethics is sure to 
have a body of norms which aim at a definite reality, at a 
set of circumstances or deeds or policies whose portrayal 
is the work of history and social science. Ethics must 
be empirical, not metaphysical. Whether we think of 
individualistic hedonism or of a social utilitarianism, or 
of any of the eudsemonistic systems so far evolved, in 
every case we must accept the experiential basis of our 
norms. The decisive feature of most ethical theories has 
been, on the one hand, its empirical tone, and on the other 
the stress of a purpose, of a goal of facts. The conse- 
quences cannot be ignored! The motive will impress 
us on occasions ; but in the long run everything depends 
on the content which our behavior or our moral precepts 
give to life itself. 



256 A CRITIQUE OF ECONOMICS 

But where is this contents to come from? What decides 
whether an idea or an action is good or bad? Whence the 
Ultimate Good that is the keystone of the arch of every 
ethical theory? 

In putting this question we are for the first time forced 
to admit that facts as such cannot yield a moral norm. 
There is no possible way of deriving an Ought from an Is. 
Whatever the data we work with in an ethical treatise, its 
highest norms will not be produced from these data in 
the manner of converting raw-materials into finished arti- 
cles of economic value. The world of facts is not that 
of moral judgments. Or to state the situation more suc- 
cinctly: A real chasm yawns, separating descriptive and 
normative analyses. Not that there are two groups of 
sciences, one descriptive of physical or social facts, and 
a second embracing rhetoric, logic, esthetics, and ethics. 
No, this time-honored classification is not a necessary 
corollary of our main thesis. But it will prove serviceable 
for the most part to put ethics in a class by itself, to 
realize that we have only two kinds of judgments, viz., 
judgment of facts and judgments of conduct. Many 
values there are, but we have only one ethical value. And 
that deals with conduct of man toward man or toward 
other animate beings, or toward a sublimated Self which 
is central in religion. 

In short, we have to do with two entirely different 
viewpoints. On the one side is science which treats of 
events and their regularities ; on the other ethics which 
considers man as a zmlling being. There the Is, and here 
the Ought, There a study of responses obeying fixed 
laws of nature, according to a mechanistic principle which 
science makes a postulate. Here a study of responsibilities 



THE METHODOLOGY OF ECONOMICS 257 

which rest on reason and power of self-direction. The 
scientist sees the world as a network of relations between 
objects and their changes. Constancy amidst change is 
the spectacle brought before us ! But from a moral stand- 
point this constancy is but the proof of an absolute will, 
of a plan consciously made and carried into execution sub- 
ject to the approval or disapproval of other responsible 
creatures. 

In other words, to ask for the source of the Ought is 
to refer thereby to a master of events, to a captain of his 
fate, nay to a sovereign who rules supreme. Every Ought 
points to a master, as well as to a master key for creed 
or conduct. It rests with us, in an historical sense, 
whether our sovereign is to be human or divine, but there 
is no room for doubt as to the logical implication of an 
Absolute. 

Until modern times, and especially during the Christian 
era, the supreme good was invariably embodied in, and 
attributed to, God. The source of moral standards was 
thought to be theistic, and the hierarchy accorded pre- 
eminence because of its superior understanding of this 
fact. The Church and the priest ruled undisputed. Re- 
velation figured as the means of enlightenment on ethical 
problems. The Gospel represented these revelations, and 
conscience the inner voice by which the precepts of the 
divine will made themselves known to men. Ethics con- 
sequently was an oifshoot of theology. Creeds became all- 
important. Tests of the Ultimate Good were, at bottom, 
subjective because covered by adherence to dogma; and 
absolutism remained the faith of moralists for centuries. 

It is however possible, as later days have shown, to 
substitute a human for a divine will; to find a sovereign 



258 A CRITIQUE OF ECONOMICS 

in men among men; and to confess by the same token 
the relativity of moral norms, no matter how profoundly 
we are swayed by them. Thus, if to-day we ask what the 
origin of the highest Good must be, we shall do best to 
proceed quite empirically, studying the forces of minority 
or majority opinion. There is no way of finding out what 
is virtue in the abstract or in the concrete except by our 
consulting the views of the whole of society or of portions 
which decide for the remainder. If a minority sets up 
norms, it may be with the tacit assent of larger numbers ; 
or we may find the majority dictate to the smaller group. 
It will depend upon the kind of norms we are thinking 
of whether they are ascribed to the will of the masses or 
of the classes. Generally speaking, though, the leader- 
ship of the few must be acknowledged, and in all cases the 
enforcement of what is declared right waits upon Might. 
That is to say, while from the standpoint of the (self-pro- 
nounced) righteous people certain acts may reflect noth- 
ing but Might, things cannot be proven right or good 
otherwise than by a dominance of opinion, by the physical 
or psychic control of either a numerical minority or ma- 
jority. True however that so far in the human history 
the Ultimate Good has never aimed at anything less than 
the preservation of life. Acts of individuals and policies 
of groups that have been destructive of the whole human 
race have never yet passed as models of virtue. The 
foremost concern has always been the protection of life 
either on behalf of one person or of a larger group such 
as a modern nation, or of a still larger racial unit. 
That has been one outstanding element in all ethical 
systems. Life on the whole has been deemed worth while 
as a minimum to safeguard. Where one individual or 



THE METHODOLOGY OF ECONOMICS 259 

group has been enjoined to sacrifice its life, other lives 
have been understood to be gained in consequence. 
Whatever the disagreement on the right contents of life — 
and here the norms have gone far apart, as might be 
expected in view of the differences among men — the good- 
ness of life itself has rarely been impugned. 

So far as economists are interested in ethics, then, their 
position will be approximately this. They will make facts 
a subject for ethical discussions, but not a source of 
ethical criteria. This latter is exclusively the human will 
in its various manifestations and modes of self-assertion. 
Once men have decided upon the nature of the Ultimate 
Good, they themselves may be adjudged virtuous or vi- 
cious, and their thoughts or actions saintly or sinful. First 
the Good, then the Good Man! First the moral norm 
independent of facts, then the facts morally appraised in 
the light of our norms. Social data as such are a-moral. 
The principles of economic prosperity correspondingly 
lack a moral value. But if moral standards chosen by 
sovereigns of physical or psychic force, through a ma- 
jority or minority, pronounce the conditions leading to 
economic prosperity moral, then — and then only! — may 
the economist offer advice of an ethical import to whoso- 
ever cares to use it. Economics in this sense waits on 
ethics, and not the other way round. 

"Applied Economics." — Furthermore, it is at all times 
perfectly correct to apply economic principles irrespective 
of ethical standards. As long as we do not confuse such 
practical applications with ethics itself no theoretical diffi- 
culty arises except one. And that one is methodological 
in character rather than practical. Namely: In ad- 
vocating public policies or private conduct, which shall 



260 A CRITIQUE OF ECONOMICS 

"apply" economic laws exactly as the natural scientist 
exploits his knowledge of the laws of nature, we are assum- 
ing that our socio-economic data are constants. At any 
rate, often this assumption is made. But to be consistent 
we should have to grant the change effected in our eco- 
nomic processes by this very act of application. The 
statesman cannot use the data of economics as the manu- 
facturer may use those of a chemist. A difference exists 
which has already been explained under Law and Correla- 
tion, and elsewhere. A dialectic is continually going on 
between mind and matter, ideas and actions, creeds and 
conditions. It modifies not only the external appear- 
ances of economic life, but also the subject matter which 
we build into statistical frequencies, correlations, and 
qualitatively founded subsumptions. One need not preach 
freedom of the will in order to distinguish between the 
applications of natural and of social science. It is neces- 
sary only to remember the variability of organic events, 
and particularly of human stimuli and responses. The 
purely matter of fact view taken nowadays of the human 
will suffices to explain the conditional nature of "applied 
economics." We apply our knowledge, but thereby pre- 
pare the way for further applications of a different sort. 
Every action has a reaction that necessitates a new ap- 
plication. In this sense the Hegelian analysis is beyond 
reproach. In this sense all of us apply economics con- 
tinually, the policies of parties and government being 
merely a special case which has excited our curiosity be- 
cause of the large scale of operations involved. Yet ap- 
plied economics must always be a variable among variables. 
Statics — Dynamics. — What remains to be said further 
than this on economic methodology, is best introduced by 



THE METHODOLOGY OF ECONOMICS 261 

a brief consideration of the terms static and dynamic, 
especially since questions as to the scientific character and 
the scope of economics were almost from the start bound 
up with it.^ 

What the eighteenth century contributed to the evolu- 
tion of this contrast was, of course, the conception of 
statics and dynamics in the world of mechanics. The facts 
of matter and motion were treated both as an equilibrium 
and as a differential giving motion to parts. The New- 
tonian system had revealed with great clearness the opera- 
tion of opposing tendencies, and it cannot surprise us if 
students of the social order took a hint from this ruling 
principle, believing that what was true of physics would 
necessarily apply also to psychics. The identity of laws 
of nature and laws of mind had long been preached, not 
only by Greek philosophers, but also by psychologists 
from Thomas Hobbes on. English empiricism was a con- 
tinuous apology for a mechanistic conception of human 
nature, the associationists being convinced of nothing so 
much as of the rigidity of the laws which determined the 
course of human learning or the succession of states of 
consciousness. Thus, without any express statement on 
the subject, most of the empiricists in England and in 
France took the dependence of mental upon material laws 
for granted. Monism was the dominant faith of the time, 
while dualism was in vogue only among the Rationalists 
who looked to Descartes and Leibniz for guidance. 

Toward the end of the century J. Bentham, the chief 

protagonist of Utilitarianism on British soil, declared 

his Table of the Springs of Action ^ to be a system of 

®For a history of the philosophical aspects see, e.g., Boucke, E. A, 
Goethe's "Weltanschauung," 1907. 
* In his "Explanations." 



262 A CRITIQUE OF ECONOMICS 

^'psychological dynamics." At the beginning of the next 
century Herbart in Germany launched his theory of psy- 
chic forces which, while designed to overthrow the older 
faculty psychology, rested none the less on a half mech- 
anistic view of ideas. "The statics and mechanics of 
mind," he wrote in 1816, "deal with the calculation of 
an equilibrium and also of movements of our concepts." 
"Concepts," according to him, "become forces in that 
they counteract one another exactly like physical forces ; 
and this happens whenever opposite ideas rise to conscious- 
ness." ^® Newtonian terms were thus transferred to the 
field of human events because it was felt that the divine 
order could not have been restricted to the planetary 
movements, or because there existed a strong belief that 
fundamentally human nature was constant. Given this 
fixity of human traits, and assuming as real the principle 
of Design or of Providence, it was not difficult to pic- 
ture the world as the best possible, the prevalence of peace 
and order being a normal condition. Reason and justice, 
natural law and conscience, liberty and a Beneficent 
Deity — these were household words to the minds of the 
Enlightenment, articles of faith that most men would 
swear to as a matter of course. A static philosophy gath- 
ered strength in these stoic and naturalistic interpreta- 
tions which agreed admirably with the settled conditions 
of the times. 

The Industrial Revolution in England, however, and 
the tremendous upheaval in France, tended to give an im- 
petus to another viewpoint which also had found friends 

^" Herbart, J. F., "Lehrbuch zur Psychologic," 1816 (Saemmtliche 
Werke, edit, of Hartenstein, G., vol. 5, pp. 15-6, 327-480; vol. 6, 
pp. 31-48). 



THE METHODOLOGY OF ECONOMICS 263 

here and there, and whose ultimate fruits were the doc- 
trines of evolution and of Historism in many forms. His- 
toriography had made great strides during the latter half 
of the eighteenth century. The interest in bygone ages 
which, though never dead, had flagged visibly before the 
Reformation, was powerfully stimulated by the practical 
political needs of that period. At the beginning of the 
nineteenth century the historical approach to human 
events had already been accepted as of primary impor- 
tance. Philosophies of history and theories of progress 
were popular themes for scientists and poets. The meta- 
physicians in Germany had generalized upon the law 
of change and made out of it a logic underlying all 
processes of thought. Thus, from various quarters, 
the materials had been garnered that could serve 
social investigators well, if they had the necessary 
insight. 

Now, Comte was one of those who believed in the regu- 
larity of human ha.ppenings, but was impressed also 
with the changes in time that historians made their ex- 
clusive subject. Comte, therefore, in addition to found- 
ing a science of "social physics" which should do for 
mental phenomena what physics had done for the world 
of matter and force, suggested that an analysis of the 
present be combined with a study of periods. Things as 
they are he wished to have studied as social statics, and 
successions of events, (analyzed with regard to their dif- 
ferences) as social dynamics. Or in his own words, "so- 
cial dynamics studies the laws of succession, while social 
statics inquires into those of coexistence; so that the use 
of the first is to furnish the true theory of progress to 
political practice, while the second performs the same 



264. A CRITIQUE OF ECONOMICS 

service in regard to order." ^^ This was the contrast that 
Comte deemed essential to a successful diagnosis of hu- 
man affairs. With this admonition he gave to the 
world a concept that economists ere long adapted to 
their own ends, though not without introducing modi- 
fications which Comte, for one, could not have sanctioned ; 
if for no other reason, because economics to him was 
not a science. 

J. S. Mill must doubtless be given the credit for mak- 
ing a larger circle of economists acquainted with the 
Comtean idea.^^ However, even with him the central 
idea was still the buttressing of the deductive method 
by a use of what he called the Historical method. If 
Comte had made it clear that all things may be pictured 
either as at rest or as in motion, and if to the science 
of Order he had annexed the science of Progress, Mill 
as his ardent admirer not only accepted this contrast, 
but furthermore exploited it as a mode of reasoning that 
should rid the exclusively deductive approach of its foibles. 
For Mill dynamics meant no less the "necessity of con- 
necting all our generalizations from history with the laws 
of human nature" ^^ than the measurement of changes in 
Invention, personal and property security, free-trade, and 
the extension of cooperation — of which he spoke specifi- 

" "Positive Philosophy" (abridged translation of H. Martineau, 
1855), p. 464. Similarly Ward, L. F., "Pure Sociology," 1903, p. 98. 
In general this idea is accepted by Mill, J. S., "Logic and Principles 
of Political Economy"; by Jennings, R., "Natural Elements of Polit- 
ical Economy," 1855, Preface; by Keynes, J. N., "Scope and Method 
of Political Economy," 1890, pp. 140-42; by Ward, L. F., in his 
"Dynamic Sociology." For a modified version see Spencer, H., in 
his "Reasons for Dissenting from Comte," March 12, 1864. 

" See "Principles of Political Economy," 5. edit., vol. II, Book 4, 
ch. 1, § 1. 

" "Logic," edit. 1871, Book 6, ch. 10, § 3 and § 6. 



THE METHODOLOGY OF ECONOMICS 265 

cally.^^ Or in other words, Mill was the first to detect 
in the distinction between statics and dynamics a meth- 
odological device supplementary to the rigidly deduc- 
tive procedure which his psychology demanded. It 
was his wish cliiefly to find data by which to test eco- 
nomic theorems based on the conception of an economic 
man. 

Later writers continued to make a distinction between 
statics and dynamics, not merely because they had an 
illustrious example in Mill himself, but because the ad- 
vent of Marginism meant both subjectivism and abstrac- 
tion. The Utilitarian standpoint was, after all, objective, 
and hence likely to remind students of the eternal flux of 
life. In seeking to explain prices through costs or ex- 
penses, in laying some emphasis upon physical produc- 
tivity, as well as upon principles of private and public 
budgeting, the Utilitarians were certain to deal largely 
with facts as presented to their senses. It was pos- 
sible, as the records show, to adopt a risky simplification of 
human nature and of social processes, while nevertheless 
attentive to their environment. Marginists on the other 
hand turned a factual into a conceptual science because 
psychic interpretations displaced all physical standards, 
the need for simplification being now greater than ever. 
Statics therefore was contrasted with dynamics, and not 
only that: The abstraction involved in this differentia- 
tion was often forgotten, so that statics came to represent 
a normal state of affairs, while dynamics formed an ex- 

" "Principles of Political Economy," 5. edit., Book IV, chs. 1-2. 
Two kinds of dynamic conditions are recognized by Pareto, V., 
"Manuel d'Economie Politique" (translated by Bonnet, A., 1909), 
p. 147 and ch. 3. See also Schumpeter's well-known views in his 
"Wesen und Hauptinhalt," 1908, and "Theorie der Wirtschaftlichen 
Entwicklung," 1912. 



266 A CRITIQUE OF ECONOMICS 

ceptional or at any rate incidental phase of the economic 
process. 

On the one hand, then, economic data were spoken of 
commonly as forces which operated in certain describable 
ways and were either at rest or in motion. A static con- 
dition prevailed for the most part, according to this 
viewpoint. "It is even true,** we read in one treatise, 
"that, as long as competition is free the most active so- 
cieties conform most closely to their static models." ^^ 

On the other hand, statics meant a methodological de- 
vice which reduced the bewildering number of actual rela- 
tions to a comparatively few, thus enabling the economist 
to lay down precise rules for obtaining the best results. 
Instead of an indeterminate number of elements we get 
a determinate number.^^ Instead of wondering about 
the mysteries of causation we are frankly advised to rest 
content with a functional, virtually mathematical correla- 
tion of events. Instead of statistics, an experimental norm 
is introduced, it being held that varying the factors under 
investigation in the manner of natural science will yield 
exact knowledge of price and income. "Given an equi- 
librium for any one economic status, and a particular fact 
of interference with it, how will price and income be 
changed?'* ^"^ This »vas stated to be the static problem 
par excellence. 

Were then no changes to be reckoned with at all ? Must 
statics mean a stationary condition, something like a body 
at rest all of whose parts are likewise motionless? The 
answer to this question was in the negative. An equi- 

« Clark, J. B., "Essentials of Economic Tlieory," 1907, p. 195. 
"Schumpeter, J., "Wesen und Hauptinhalt," p. 28. 
^''Ibidem, pp. 460, and 446-51. 



THE METHODOLOGY OF ECONOMICS 267 

librium, we read, is a "state which would be prolonged in- 
definitely in the absence of changes for conditions sur- 
rounding it" ; ^^ but this did not exclude changes of a 
quantitative kind which would modify magnitudes, without 
affecting the number of elejnents brought into correlation. 
At least this was a distinction frequently made, and to 
which those assented who gave the matter some thought. 
The difference between qualitative and quantitative 
changes was believed to be generic. For one writer the 
dynamic features were a growth of population, or of capi- 
tal, or changes in methods of production, or of organiza- 
tion, or changes in consumers' wants. ^® Another writer 
reduced all dynamic agents to four, viz., 'variations of the 
extension of the zone of economic activity, variation in the 
relative amounts demanded by productive enterprises, for 
general and special outlays, variations in structure of 
population, and variations in those descending curves 
which represent gradations of costs of different incre- 
ments of products." ^^ A third author stressed changes 
in humanity (population, its wants and capacities), and 
in environment (land, capital-goods, and the loan- 
fund) ; ^^ while a fourth mentioned as most important 
changes those in population, culture, natural resources, 
and the technique of production."^ 

For the most part the static condition was associated 
with an exchange-system whose study made of economics 
a science of catallactics. Changes occurring spontane- 

"^ Pareto, V., "Manuel," ch, 3, § 32. 

« Clark, J. B., "Essentials," pp. 203-06. 

** Pantaleoni, M., in Publications of Am. Ec. Assoc, 1910, p. 112: 
"Phenomena of Dynamic Economics." 

*^ Davenport, H. J., "Economics of Enterprise," 1913, pp. 453-54. 

^ Fetter, F. A., "Economic Principles," vol. I, pp. 400-01. For an 
interesting variant on these views of statics see Knight, P. A., "Risk, 
Uncertainty and Profit," 1921, Ch. 5. 



268 A CRITIQUE OF ECONOMICS 

ously within the economic regime were either considered 
unimportant, or of that quantitative type that affected 
in no wise the premises of the reasoner. For one group 
it seemed true that "the actual form of a highly dynamic 
society hovers relatively near to its static model, though 
it never conforms to it" ; ~^ for another dynamics repre- 
sented a transition stage that was to statics what the 
exception is to the rule. 

Yet it may be regarded significant that the same writer 
who first said: "An equilibrium is a state in which, as 
long as no disturbing factor from outside appears, no 
leaning toward a change exists," ^^ added a few years 
later: "Economic systems would change even if nothing 
whatever underwent changes outside of them." ^^ The 
need of a dynamic standpoint, in other words, was clearly 
recognized. It is admitted that, whatever the service of 
a static abstraction, "as a psychology of economic proc- 
esses [it] is a failure in an important case, and can never 
be valid." ^^ Not only were non-economic events tabu- 
lated as an integral part of dynamics continually at work, 
but what is more, the resort to dynamics for completing 
the economic picture gained popularity. The short- and 
long-time views of human interrelations were focused upon 
central themes such as hedonism versus energism,^^ or 
price versus valuation. Different classes of men seemed 
at the head of economic activities, dependent upon view- 
point; or the same men seemed to be actuated by differ- 
ent motives according to whether statics or dynamics 

« Clark, J. B., "Essentials," p. 195. 
** Schumpeter, J., "Wesen und Hauptinhalt," p. 36. 
^ Schumpeter, J., "Theorie der Wirtschaftlichen Entwicklung," pp. 
469, 490. 

*' Schumpeter, "Wesen und Hauptinhalt," p. 512, Note. 
"Ibidem, p. 128. 



THE METHODOLOGY OF ECONOMICS 269 

became the method of the economist. "The contrast," we 
are informed by an American observer, "may be put in 
general as the contrast between the theory of value, and the 
theory of price, statics being price-theory, and dynamics 
being value-theory." ^^ 

But even more room was made for dynamics by others 
who saw the danger of an excessive simplification of prob- 
lems. If for one writer "there are as many 'static states* 
as there are economic problems worth studying," ^^ for a 
second "any realistic study of distribution must be dy- 
namic — ," ^^ while to a third a purely dynamic economics 
is the only satisfactory one. Thus as early as 1892 the 
preeminence of dynamic agencies is stated as follows, 
again by an American : "Changes in race psychology 
[i.e., "subjective qualities, desires, and feelings created 
in men by society"] give to men a new economic environ- 
ment. This new environment modifies the standard of life 
through changes in consumption, and then the new stand- 
ard acts upon the race psychology and creates new mo- 
tives in production. This complete economy I would call 
a dynamic economy because it keeps up a series of pro- 
gressive movements in society through the reactions be- 
tween the subjective and objective worlds." ^■'- Historism 
and the economic interpretation of history thus helped to 
clarify men's notion of the dialectics of social develop- 
ment, the net outcome being a thoroughly dynamic ver- 
sion of economic types of events. 

We are bound to ask : Is the distinction between statics 

^'Anderson, B. M., "Value of Money," p. 559. See also ch. 25. 

^ Knight, F. H., in /. of Pol. Econ., 1921, p. 305. 

8" Ely, R. T., "Property and Contract," 1914, vol. I, p. 33. 

"1 Patten, S. N., "Theory of Dynamic Economics," p. 38. See alSo 
the same writer's remarks in Publications of Am. Ec. Assoc, vol. 11, 
1910, p. 128. 



270 A CRITIQUE OF ECONOMICS 

and dynamics to be upheld for future labors? Does 
statics rank properly as a "normal" state of affairs 
whose analysis constitutes the bulk of economic re- 
searches? Or may we turn our back on them, declaring 
economics to be a dynamic study solely, i.e., a study which 
is entitled to no more abstractions than natural scientists 
make use of? 

Now the answer, It should not be difficult to guess, is 
the elimination of statics by studying things exactly as 
they are, irrespective of their intricacies. The sociolo- 
gists have been a good example for the economist in 
this respect as in some others. They have not expatiated 
long on the pros and cons of statics, but instead ad- 
justed their plans to the material directly before them. 
And this must be considered the only profitable method. 
For not only do socio-economic relations and conditions 
change continually — a fact most economists conceded in 
the abstract — but in addition these actual events differ 
qualitatively, i.e., incomparably, from those known to 
statics. The chief reason why economists cannot imitate 
physicists without invalidating their conclusions is their 
inability to estimate dynamic facts quantitatively after 
they have worked with statics. To claim : "The oscilla- 
tions [of the price pendulum] are due to dynamic forces; 
and these can be measured, if we first know the nature 
of the static forces and the position to which, if they were 
acting alone, they would bring the pendulum" ^^ — to say 
this is to promise the impossible. For, as we have seen, 
a radical difference exists between the units of natural 
sciences and those of social sciences. The first are regu- 
larly proven to be irreducible; they are definite and 
«» Clark, J. B., "Distribution of Wealth," 1899. 



THE METHODOLOGY OF ECONOMICS 271 

built into events that may be measured by rigid stand- 
ards whose operation we may follow with our senses, 
with or without the aid of instruments. The second class 
of units however are as indefinite in many cases as they 
are numerous and liable to change both in an objective 
and in a subjective sense. The economist, unlike the 
natural scientist, does not deal with a demonstrably 
homogeneous class of things, except in so far as for any 
one situation he assumes a definite contents to make his 
measurements. Economic statics, consequently, cannot 
be to economic dynamics what physics can be to, say, 
meteorology; for the latter two deal with the same num- 
ber of elements while the former two involve different 
numbers and kinds of elements. The meteorologist might 
predict the weather accurately at all times if he could 
measure all the variations in the magnitude of the few 
elements he is concerned with, these elements themselves 
being studied also by physicists. But if we wish to cor- 
relate social events as they occur we cannot count on 
the restriction of the number of factors that the advocates 
of statics demand. It is not merely a question of facing 
a vast range of fluctuations of elements defined for a 
correlation, but also of bringing facts into a formula 
in a dynamic view that the statical takes no cognizance of. 
Thus, while it is true that in part dynamics and statics 
so-called cover the same data in economics, and while 
again we must admit that causality is as real for human 
events as for the physical — supposing we accept the 
terms of causation at all — an "ideal" or static economics 
can not be made an index of actual dynamic condi- 
tions. Abstractions are part of scientific work, but they 
should not give us contradictory views of a subject. To 



272 A CRITIQUE OF ECONOMICS 

present the same data from several angles, at short and 
at long- range with differences of emphasis or aspect, is 
one thing ; but to alter the facts for the sake of a specious 
argument is still another thing. The first may be most 
instructive in its way; the second can only lead to ab- 
surdities. 

The Methods of Economics. — ^Lastly, the methods of 
economics must be the same irrespective of the distance 
from which we view our materials. Nor do they call for 
lengthy elaboration at this point, since their several uses 
have already been considered in previous chapters. From 
what has been said on law and causation it follows that 
economists will resort almost entirely to statistics and 
reflection. 

Experimentation is out of the question for the social 
sciences because we lack the means of isolation and repro- 
duction, and cannot exactly measure the quantitative 
changes accompanying a particular variable. J. S. Mill 
himself was emphatic in making this clear, contrasting 
chemical with mechanical causation. As he saw it: "In 
social phenomena the composition of causes is the uni- 
versal law." "The effect whch is produced in social phe- 
nomena by any complex set of circumstances amounts pre- 
cisely to the sum of the effects of the circumstances taken 
singly," and "social science therefore is a deductive sci- 
ence ." ^^ Now, this would hardly be an objection 

to the experimental method in economics to-day, since 
we cannot hold to the mechanical conception of human 
happenings entertained by Mill. So far from conscious- 
ness obeying the mechanical laws of association, as taught 
by the eighteenth century psychologists, they appear to 

""Logic," Book III, ch. 10, § 8 and Book VI, ch. 7. 



THE METHODOLOGY OF ECONOMICS 273 

us as synthetic products admitting of no summation. We 
should call the social laws chemical, and not physical, and 
thus disagree sharply with the sensationalists. But 
because of the indefiniteness of our units, because of their 
complex make-up and their instability, we are as keenly 
aware of the unfitness of experimentation for social sci- 
ence as Mill. We not only grant the plurality of causes, 
but also that of effects. We not only picture physiologi- 
cal processes in terms of chemistry, but likewise find it 
exemplified in streams of consciousness, in inter-individual 
activities. Thus we reject a proposal for laboratory 
methods in order to secure generalizations. It is obvious 
to us on first thought that events cannot be added and 
subtracted so as to leave a basis for comparisons. What 
attempts at experimentation may be urged by a would-be 
reformer, or by theorists offering a rule for action, will 
almost surely prove impracticable. We want none 
of these try-outs, and dread the useless waste and incon- 
venience to be occasioned by such a measure. Things are 
never exactly the same, we believe, because our whole life 
has been a chain of unique events in one sense. Thus the 
difference between the units of physical science and those 
of, e.g., economics is indirectly conceded. We may be 
eager to consult the facts and to verify our conclusions 
up to a maximum possible degree, but such inductions can- 
not obey the time-hallowed canons of agreement and dis- 
agreement. 

In other words, we must proceed statistically if we are 
to undertake measurements at all. As has been shown, 
our units and their correlations may be handled in no other 
way. That regularities exist was evident to men a century 
ago, and that some of them attain nearly to the precision 



274 A CRITIQUE OF ECONOMICS 

of physical laws the Belgian Quetelet was among the first 
to demonstrate. All the characteristics that distinguish 
vital phenomena from all others also help us to decide 
when to apply statistical measurements and when the ex- 
perimental. Thus we may choose for correlation per- 
ceptual objects, or larger event-complexes which them- 
selves constitute relations between things or persons. 
We define and compare our units. We count frequencies 
and devise averages for convenience, ignoring fluctuations 
whose final explanation may not be given anyhow. We 
take care to make our classes or events comparable by 
all the tests which experience has gradually taught us to 
apply. We adjust our time and space units to the nature 
of our subject-matter and to the variations we may be 
measuring. Our series may have to be subdivided, and 
our coefficients of correlation be corrected in view of 
special known facts functioning as conditioning pheno- 
mena. There are many precautions to be taken lest our 
results become unreliable. 

Yet if compiled with care statistics may be used both 
inductively and for purposes of verifying deductions 
directly from our knowledge of human nature. It is fair 
to forecast events on the strength of measurements re- 
garding individual, or bundles of, events. Though our 
data will never be known as completely as those of a 
natural scientist, yet an agreement between hypothesis 
and our actual counts is a most favorable omen in many 
cases. We may assent to the dictum that "it is impos- 
sible to frame any general theories of value, interest, 
wages, rent, etc., by purely a posteriori method of reason- 
ing'*;^^ but this will not blind us to the merits of statis- 
•* Keynes, J. N., "Scope and MethoS of Political Economy," p. 199. 



THE METHODOLOGY OF ECONOMICS 275 

tics, to the value of numbers, of frequency, of constants 
of fluctuation, of multiple correlations as a basis for 
short-time inferences. Results hitherto attained have 
not discouraged the investigator. The calculation of 
probability has become part of many a survey of facts 
economic and sociological. If statistics do not rival 
experimental methods in exactitude and magnificence of 
verified generalizations, neither has its method as yet 
been so highly perfected; nor have we had time to evalu- 
ate changes as integral portions of a cycle which — so far 
as we know — may repeat itself somewhat in the fashion 
of laws of nature. 

Of the "Mathematical Method." — However, even apart 
from such shortcomings of the statistical method there is 
no denying that a great deal of the social scientist's work 
will always be done by reflection, that is with the aid of 
the third method which has been commonly called deduc- 
tive, and for which mathematics has become famous. Not 
that the latter, incidentally speaking, has any distinct 
methods of its own, or brings us into touch with new 
basic principles. No. The mathematician reasons like 
other human beings. He relies upon premises and intui- 
tion. He hypothecates with the aid of known facts and 
under guidance of mental association. He deals with 
magnitudes and makes measurements by dint of close rea- 
soning. He may correlate his chosen magnitudes and pro- 
claim eternal verities. He may devise a language of his 
own and standardize his notation more easily perhaps than 
others. There are graphs and equations for him to de- 
velop that provide the ear-marks of a "mathematical 
method." But what really sets off this method from 
others is not the dress in which it appears, but rather its 



276 A CRITIQUE OF ECONOMICS 

independence of the facts of experience. If therefore we 
allude to a method characteristic of mathematics ^^ we 
cannot mean something additional to the three standard 
methods of experimentation, statistics, and reflection. We 
can only stress the difference between a science drawing 
its premises from a factual world and being logically con- 
strained to verify them (or else having its conclusions 
questioned), and another field in which conclusions relate 
to assumptions solely, not also to an environment of com- 
mon sense. Mathematics may be called a unique disci- 
pline — if formal logic be not one with it — since it cares so 
little about empirical tests, and so much about rigorous 
thinking. The remark of a recent writer that "the per- 
fection of the modern method [of geometry] is attained 
when it is entirely freed from dependence upon figures or 
constructs or any appeal to the perceptual character of 
space. When geometry is thus freed from this appeal to 
intuition or perception, the methods of proof are simply 
those which are independent of the nature of the subject 
matter of the science — that is, the methods of logic 
which are valid for any subject matter" ^^ — this re- 
mark may well serve to differentiate mathematics '.in our 
mind from all other types of investigation. So far as 
this aloofness from content sensually derived is peculiar 
to mathematics it practices deduction and is in a class by 
itself. 

But this being so, we must grant at the same time that 
economics cannot be simply deductive : for in economics we 

* The economic mathematical literature of recent years is re- 
viewed by Edgeworth, F. Y., in Ec. J., 1908, vol. 17, pp. 221-32, 524- 
31 ; vol. 18, pp. 392-403, and 541-56. On use of graphs see, for in- 
stance, Waffenschmidt, W. G., in Archiv. f. Sozialw. und Pol., 1914-15, 
pp. 438-81, and 795-818. 

"Lewis, C. I., "Survey of Symbolic Logic," 1918, pp. 341 and 372. 



THE METHODOLOGY OF ECONOMICS 277 

treat of facts, and frequently of such as may be verified 
by our senses, even after they have been converted into 
scientific values. If then we use the phrase "deductive 
method," we must mean by it reflection as here understood. 
We must distinguish between the measurements of experi- 
mentation and statistics, and their absence in reflection. 
We must bear in mind the factual content of economics 
as against the conceptual nature of mathematical proofs. 
The employment of symbols and equations typical of 
mathematics will not make economics a mathematical sub- 
ject, nor could economists on the other hand, who reduce 
their complex units and relations to a handful of magni- 
tudes for purposes of coordination, be called anything but 
mathematicians. For surely, the mere circumstance that 
our entities are taken from an economic world does not 
leave them economic if their meanings and connections are 
destroyed. 

But it is none the less right to accord a place to reflec- 
tion in social inquiries, since qualitative correlations are 
as much a part of science as the quantitative. Whenever 
the determination of exact magnitudes is unimportant, 
whenever our regular recurrences relate to elements as 
such, simply as qualities or events, whenever types of rela- 
tions and common attributes are sought that bind to- 
gether large classes of seemingly independent relations, 
then the reflective method will take the place of statistics. 
There are many kinds of problems that no other method 
can solve. There is much reason in general for the senti- 
ment, voiced by a sociologist, that "inspired intelligence" 
must always score heavily in the fathoming of truth, and 
that "the sooner we cease circumscribing and testing our- 
selves by the canons of physical and physiological science, 



278 A CRITIQUE OF ECONOMICS 

the better." ^^ At any rate, in addition to statistics re- 
flection must be relied upon for a correct evaluation of 
phenomena ; and what is more, the time will probably never 
come when quantitative measurements can alone fill the 
needs of economics, or put to shame the results of quali- 
tative correlation. 

Reflection for economists will remain probably a mode 
of approach superior to statistics, no matter how much 
this latter accomplishes. Qualitative analysis may not 
be as intelligible to the casual reader as averages or a 
chart of coordinates well plotted, but as a subtler presen- 
tation of incommensurables, as a unified account of a com- 
plex process viewed from one angle, it should never cease 
to be attractive. If a rank must be assigned therefore 
to our principal economic methods, it surely will be reflec- 
tion first, and statistics second as a tool for research. 
This seems just to both, and need not oust the statistician 
from his own peculiar sphere of usefulness. 

•^Cooley, Ck. H., "Social Process," 1918, pp. 397-400. 



CHAPTER TEN 
LINES OF RECONSTRUCTION 

What to Discard. — In what follows some of the points 
will be seen to have been brought up before, or at least 
hinted at in connection with a discussion of allied topics. 
Others will here be added for the first time, partly because 
they may serve to indicate what changes seem most in ac- 
cord with the suggestions of a host of 'writers during the 
last generation, and partly because it would be false 
modesty to subject the premises and principles of cur- 
rent economics to a candid criticism without taking the 
last step in which corollaries, theoretical and practical, 
are clearly stated. There is no harm in offering advice 
provided we do not assume a dogmatic tone, or reason on 
the assumption that it rests with one man or a few to 
point the way to salvation. What is intended here is not 
an unwavering declaration of independence which breaks 
nonchalantly with the past, with its achievements and 
memories of great men, but a revaluation of means and 
ends in harmony with current opinion, not only in eco- 
nomics, but just as well in other fields of inquiry. The 
trend of economic theories may not be what we expect. 
The extent to which a revision is feasible or advisable may 
be doubtful to all of us. But it is logical that we specu- 
late on its probable course, and point out some of the 
changes of belief or emphasis upon which many appear 

to agree even now. 

279 



280 A CRITIQUE OF ECONOMICS 

In matters of methodology there seems ground for re- 
jecting the following, viz., first, the distinction between 
causal and functional relations in any science; secondly, 
the distinction between causation and law, except as as- 
pects of one and the same situation ; third, the distinction 
between law and correlation in the sense that one is causal, 
but not the other, or that only the first is of a scientific 
character ; fourth, the division of the data of experience 
into ideographic and nomothetic, as if the existence or 
absence of laws could be demonstrated a priori; fifth, the 
idea that certainty inheres in physical processes, but is 
impossible elsewhere, so that experimental induction yields 
infallible generalizations, while statistical induction is al- 
together untrustworthy; sixth, the sharp separation of 
induction and deduction, and the designation of economics 
as a deductive science with a purely conceptual basis ; 
seventh, the derivation of social laws of any kind from 
psychology or physiology; eighth, the associational- 
hedonistic theory of valuation and motivation ; ninth, the 
recognition of two kinds of economic laws, the static and 
the dynamic, with the implication that the former is either 
self-sufficient or a necessary adjunct of economic research; 
and tenth, the belief in universally true quantitative laws 
of economics. 

These are articles of faith that cannot be considered 
tenable at the present time, and the errors of which have 
already been brought up for discussion. But others now 
deserve special stress. 

Thus we must disapprove of the identification of shares 
(incomes) with prices, or of reducing all classes of in- 
comes to four, named wages, profits, interest, and rent. 
For the derivation of laws of price from a study of human 



LINES OF RECONSTRUCTION 281 

nature must be held impossible ; and with this recognition 
of the difference between problems of economics and those 
of psychology will come also a different conception of 
laws of price, respectively incomes. Supply and demand, 
to be sure, will still figure as psychic facts whose signifi- 
cance for economists is far from negligible, but in trying 
to determine prices of goods and services we shall relate 
the physical view of supply and the pecuniary measure- 
ment of demand to the valuation aspects which hereto- 
fore have been given undivided attention, especially by 
Marginists. 

Utilitarians, that is the friends of an objective view of 
exchange values and productivities, will have to abandon 
the hope of explaining prices by a deductive method 
even while clinging to expenses as a distinct category of 
determinants. Instead of this statistical measurements 
may render important service, unless indeed the quantita- 
tive analysis of social correlations is to be displaced en- 
tirely by a qualitative one. But this is a point not to be 
settled in a jiffy. 

Marginists in particular will be hard hit by their con- 
sistent exploitation of a relatively few premises taken 
over from the eighteenth and early nineteenth centuries. 
Since the sensationalistic doctrine of valuation, e.g., has 
been thrown into the discard, they must give up also the 
hope, not only of explaining prices psychologically, but 
of establishing a more or less definite ratio between volume 
and value. In the past this reliance upon principles of 
utility has side-tracked economists in their quest for laws, 
besides causing some of them to confuse the physical as- 
pects of production or value with the psychic, so that a 
logical impasse seemed to have been bridged when in reality 



282 A CRITIQUE OF ECONOMICS 

it was past mending. Thus purchasing power, output of 
things and services, and physiological states during or 
immediately after consumption were often enough con- 
founded with psychic data that alone, by previous proc- 
lamation, concerned the Marginist. This blunder will 
hereafter be impossible. The enlistment of psycholo- 
gists in the service of economics, while continuing in some 
form, will have a very different purpose. 

But furthermore, Marginists will have no reason to re- 
tain the margin as a standard for measuring differentials, 
seeing that their psychological premises have fallen into 
disrepute. Measurement will become more important than 
ever but it will not be of a psychological character. Nor 
will there be any grounds for accepting a theory of impu- 
tation, either as a causal or as an ethical fact, in order 
to find thereby the components of joint-value or the spe- 
cific contributions made by an individual agent of pro- 
duction. Whatever worth will attach to an allocation of 
values, it will not be logical ; nor should it give rise to 
moralizing dissertations on labor and capital. 

What is to be Retained. — As against what is to be ex- 
cluded, however, economists will doubtless retain many of 
the features common to both Utilitarianism and Margin- 
ism. Now, among these the following deserve special men- 
tion, namely first, the acceptance of economics as a sci- 
ence; secondly, some of the principles or laws which so 
far have been discovered, and which are perfectly com- 
patible with the change of front urged in regard to 
methodology ; third, the recognition of reflection as a dis- 
tinct method, whose results must always constitute a large 
part of economic truths ; fourth, the admission of descrip- 
tive matter, even though it contain no generalizations 



LINES OF RECONSTRUCTION 283 

whatsoever, nor apply to anything but the facts of a given 
regime or locality ; fifth, a logical unification of the prin- 
cipal divisions of economics, first because the events them- 
selves are so inextricably interlaced, and furthermore, on 
account of the importance of valuation in any science like 
economics ; sixth, the combination of a short-time with a 
long-time viewpoint, both however to take facts as they 
are, thus implying in no wise a return to a static abstrac- 
tion ; and finally, the rigid, unqualified exclusion of ethics 
from economics, even when it is felt that practical advice 
of any sort should be preceded by a confession of moral 
ideals. 

New Problems for Present-Day Economics. — Not only 
must these elements of economics be deemed an indispen- 
sable part of future systems, but what is more, we shall 
have to prepare for certain departures. 

In general, namely, there will be need of a purely 
dynamic viewpoint, which aims at a quantitative correla- 
tion of as many economic data as, in the course of our 
studies, prove to be fit for such treatment. Statistics 
therefore will play a larger, not a smaller, part in the 
economics to come, and this will tend to supplement the 
qualitative analysis of the past with another set of in- 
ferences now practically unknown. In the next place, eco- 
nomics should be regarded, not as a catallactics or plu- 
tology, but as the systematic study of all facts bearing 
upon relations of weal and wealth, whether this concerns 
scarce or plentiful goods. The pecuniary aspects of pro- 
duction, distribution, and consumption will thus give way 
to, or more likely be supplemented by, a tracing of se- 
quences (or coexistences) that acquaint people with so- 
cial interests and things, rather than with competitive 



284 A CRITIQUE OF ECONOMICS 

norms and counters of currency. And finally, the logic 
of our science as well as the trend of public affairs will 
compel economists to stress the national viewpoint, to 
point out succinctly the consequences of public control. 
Hence, in place of an abstract science of economics there 
will reign a political economy anchored largely in laws of 
cosmic force, but carrying a super-structure of generaliza- 
tions mainly national in scope. 

Such will be the principal innovations in keeping with 
the future trend of economic theory ; but certain details 
may, tentatively, here be added. 

Under the heading of Production, which should be 
given first consideration because of the primacy of envir- 
onment and its independence of human valuations, the 
following topics will engage our attention: Essentials of 
human nature and its modification, respectively capacity 
for modifications, by the learning process in many indi- 
vidual and social aspects ; the physical environment, nat- 
ural resources, and the chief facts of national demog- 
raphy ; capital as goods for production in the technologi- 
cal sense, and the make-up of wealth in general, physical 
volume of classes of goods and of services being studied 
as well as their relation to values according to competitive 
or collectivistic norms ; labor forces as dependent upon 
population data and upon educational facilities, and the 
bearing of both upon supplies of labor kinds relative to 
ideals of income ; the organization of the productive proc- 
ess notably in three phases, viz., the technical, legal, and 
financial, and the place of entrepreneur or government in 
the system now in force ; principles determining national 
productiveness both from the short-time and long-time 
viewpoint ; the relation between production and domestic 



LINES OF RECONSTRUCTION 285 

and foreign trade ; and the ways and standards for meas- 
uring productivity in the non-pecuniary sense, with due 
regard for its applicability to distributive questions. 

These will be topics figuring prominently in any analy- 
sis of production. 

Under Price, as a second division in economics, may fall 
such outstanding facts as: The valuation process in its 
non-monetary aspects as preliminary to a qualitative 
analysis of price; in the next place the determination of 
laws of price — if they obtain at all ! — by a correlation of 
price with a variety of events, and especially with: other 
prices of goods and services studied individually or by 
groups, with personal incomes or income-classes, with 
costs of the non-pecuniary, physical sort, with pecuniary 
expenses, where possible, with physical supply of goods 
or laborers, etc., and with data of foreign trade. 

These data will be consulted as possibilities for discov- 
ering laws of price, apart from the qualitative analysis 
which economics hitherto has used almost exclusively. But 
there remain as further points for correlation — to men- 
tion only a few: ranges of price fluctuation relative to 
income changes ; movements of wholesale as against re- 
tail prices ; the territorial extent of a given price at a 
given time ; price-level movements in point of order, degree 
of change, and direction, whether compared directly with 
currency changes or not; and finally the study of wages, 
rent, and interest in their bearing on facts of production 
and commodity prices, etc. 

In the third place income should be studied independent 
of prices for the loan of capital or the lease of land, or 
even of the share assigned to labor, these incomes being 
measured per individual or classes of people instead of 



286 A CRITIQUE OF ECONOMICS 

figuring as prices paid for services in the open market. 
For prices acknowledgedly constitute only a part of the 
sources to which most people may look for income. From 
this angle, then, incomes may reveal principles not de- 
rivable from prices of any kind, while on the other hand 
prices may throw light on some or on all incomes. 

Fourth: The problem of the growth (or shrinkage) of 
wealth will be partially solved by inquiry into modes of 
consumption, into profit rates and investment trends, into 
the processes by which thrift becomes national pros- 
perity, and into the facts which may, or may not, be 
proven to result in business cycles, these cycles having a 
non-competitive no less than a competitive interpretation. 

In the fifth place, public control is bound to receive 
much attention in future economic treatises, their revi- 
sion affecting probably most of all theories of taxation, 
incidence and ability to pay, but also trading policies 
among nations. Not only this, but in addition new appli- 
cations may prove feasible, be it price-fixation, or social 
insurance, or vocational control, or regulation of invest- 
ment, or still other fields of enterprise which now are, in 
the main, a matter of freedom of contract. In these and 
further experiments the economist may wish to be able to 
offer advice. Whether he shall feel free to do so will de- 
pend upon his approach to economic data; but that in 
some degree legislators will continue to utilize economic 
research seems certain. As a science economics may not 
fulfill the promises once made with a light heart, but as 
an intensive study of national facts, with a stress on regu- 
larities that in a non-psychical sense obtain over wide 
areas and for long stretches of time (however variable by 
another standard!), economics may yield important re- 



LINES OF RECONSTRUCTION 287 

suits, offsetting by its usefulness to statesmen what it 
lacks in the universality of its truths or pretensions. 

The Outlook in the United States. — Particularly in the 
United States, it would appear, this hopeful outlook is 
amply justified notwithstanding the dissensions among 
the economists for the moment. For here nearly all the 
conditions exist that are conducive to a rapid and original 
development of social science. A block of resources no- 
where equaled in the world is ours, and bids us to further 
effort on a heroic scale. The population is sufficiently 
unified and organized technically to realize its opportuni- 
ties and perform its duties. Pressing needs have sprung 
up since the World War, yet without their jeopardizing 
our national existence or annulling earlier endeavor. 
Education is being popularized and made to serve the 
interests of the masses as never before. Instead of idle- 
ness, it is labor for and with others which increasingly 
earns praise and tangible reward. Intensification every- 
where is the watchword, and with it a deepening of the 
social conscience is taking place which will realign politi- 
cal and economic forces. Solidarity thus assumes a new 
meaning. Efficiency is subordinated to ideals. Enterprise 
has new regulations to observe, but in the long run is 
likely to benefit by them, besides improving the fortunes of 
the average man. 

Economic legislation and instruction will accordingly 
become more rather than less important. The demand will 
be for persons who are trained in matters economic and 
know how to distinguish between individual and social 
norms. In high schools and in colleges the economic ap- 
proach to life values will be increasingly respected and 
the cause of economic research gain in proportion. The 



288 A CRITIQUE OF ECONOMICS 

days when economics could be considered a set of theories 
which might challenge the speculative powers of a few 
closet-philosophers, but could have no further interest, 
are probably over. In an ever-widening circle economic 
topics are made a subject of serious discussion, nay, 
the concern of men who are chiefly responsible for na- 
tional prosperity and progress. 

All this then means that economists will have to estab- 
lish, with much care, a broad basis on which to erect their 
edifice of generalizations and practical counsel. If it be 
not without significance that economics is the offspring of 
philosophy and psychology, neither should it be hard to 
comprehend that to-day a thorough drill in the funda- 
mentals of valuation, in logic, ethics, epistemology, and 
psychology is an excellent preparation for, and asset of, 
the student of economic problems. A sharper distinction 
between economics as a science or philosophy of life and 
the so-called applied branches of economics may there- 
fore prove beneficial to all parties concerned, and this not 
only because the two differ in aims or practical value, 
but also because of differences in mental attitude and pre- 
requisites for success. For in the end it must be admitted 
— since the whole history of thought is testimony to our 
assertion — that specialization gains at the expense of a 
certain spiritual aloofness which characterizes science 
pure and simple. 

It is for economists everywhere to decide whether they 
wish speedy results or an outlook that educates by de- 
grees. But whatever their decision, can there be doubt 
as to the opportunities for service.'' 



BIBLIOGRAPHY 

INTRODUCTORY NOTE 

The following points should be noted in scanning this list 
of references: 

(1) The bibliography is subjective rather than objective. 
That is, it indicates roughly what kinds of literature helped to 
shape the present writer's viewpoint. No attempt is made 
here to give a complete account of readings which extend over 
many years; nor can the list be considered in any measure 
indicative of even the most important works relating to the 
several subjects. Much of what is best is not mentioned, while 
other works of secondary significance are mentioned because 
of the hints they furnished the writer. In the main, then, this 
bibliography is a sample of available materials for a restate- 
ment of the methodological problem in economics. As such, 
and only as such, it is offered. 

(2) No mention is made of any literature on the history or 
theory of economics. The writer has tried to acquaint himself 
thoroughly with it, and especially with publications of the 
last two decades. However, it was felt on the one hand that 
a list of such writings is of no great value in a survey that is 
chiefly methodological ; and on the other hand many references 
are given in the foot-notes of the first five chapters of this 
book. 

(3) A large periodical literature on non-economic subjects 
has also been consulted, but with one exception is not here 
itemized. An exception was made in the case of psychologi- 
cal journals because of the data they furnished for a refuta- 
tion of hedonistic associationism. 

289 



290 



A CRITIQUE OF ECONOMICS 



(4) The great bulk of economic methodology both before 
and since 1900 is German- Austrian. Indeed, it equals in 
volume that of all other countries combined. A perusal of the 
journals listed below will incidentally lead to this conclusion, 
although the main purpose is of course to show what periodi- 
cals were systematically gone over, in order to secure light on 
certain questions. 

(5) The principal fields of literature, and the problems 
they were brought to bear on, are as follows : 



Classes of Literature 

Psychology 
Epistemology 



Logic 



Methodology 



Ethics 



Made to Bear on Problems 

OF 

Valuation 

Inductive Reasoning 

Nature of Science: Law 
Causation and Correlation 
Interrelation of Sciences 
Statics and Dynamics 

Nature of Deduction 
Mathematical Method 
Proof and Probability 

Methods of Science: Measure- 
ment 

Scope and Limits of Statisti- 
cal Induction 
Scope of Economics 

Relation of Ethics to Eco- 
nomics 



BIBLIOGRAPHY 291 

A. PERIODICALS USED 

I. The Social Sciences 

1. German 

For the Years 
Archiv fur Sozialwissenschaft und Sozial- 

politik 1900-18 

Jahrbiicher fiir National-CEkonomie und Sta- 

tistik (Conrad's) 1900-19 

Jahrbuch fiir Gesetzgehung, Verwaltung und 

Volkswirtschaft (Schmoller's) 1900-18 

Zeitschrift fiir Sozialwissenschaft 1898—1915 

Zeitschrift fiir die Gesammte Staatswissen- 

schaft . 1900-15 

Zeitschrift fiir Volkswirtschaft, Sozial-politik 

und Verwoltung, Wien ,. . . .1901—15 

2. French and Italian 

Journal des Economistes. . . ., 1900-12 

Revue d'Economie Politique. 1900-19 

Giornale degli Economisti 1914-19 

3. British a.nd American 

The Economic Journal 1900-19 

The Economic Review 1900-15 

American Economic Review 1910—21 

Annals of the American Academy of Political 

and Social Science 1900—20 

Journal of Political Economy 1900-20 

Political Science Quarterly 1900-20 

Quarterly Journal of Economics . ... . 1900—20 

American Journal of Sociology 1900—21 

American Statistical Association, Quarterly 

Publications ,. . . ., 1900-1920 



292 A CRITIQUE OF ECONOMICS 

II. Psychology and Philosophy 
1. German 

Archiv fur Systematische Philosphie 1895-1917 

Vierteljahrs-schrift fur Wissenschaftliche 

Philosophie und Soziologie 1903-18 

2. British and American 

British Journal of Psychology 1904-10 (9 vol.) 

Mind 1901-18 

Journal of Philosophy (Psychology and 

Scientific Methods) 1904-18 

American Journal of Psychology 1900-18 

Psychological Review 1904—18 

Psychological Bulletin (Literary Section of 

Psych. Review) 1904-18 

B. BOOKS 

I. Psychology 

1. History 

Klemm, O., "History of Psychology" (transl. by Wilm, E. 

C. & Pintner, R.), 1914. 
Baldwin, J. M., "History of Psychology," 2 vols., 1913. 
Moore, J. S., "Foundations of Psychology," 1921 (largely 

historical) . 
Warren, H. C, "History of Association Psychology," 1921. 

2. Associational Psychology 
Mill, Jas., "Analysis of the Phenomena of the Human 

Mind," edit, of J. S. Mill and Bain, A., 1869. 
Brown, Th., "Lectures on Philosophy of Human Mind," edit. 

of 1830 and 1854. 
Bain, A., "The Senses and the Intellect," edit, of 1872. 
Herbart, J. F., "Lehrbuch zur Psychologic," 1816 (edit, of 

Hartenstein, G., Saemmtliche Werke, vol. 5). 



BIBLIOGRAPHY 293 

8. Modern General Texts 
JoDL, F., "Lehrbuch der Psychologic," edit, of 1916. 
Lipps, Th., "Leitfaden der Psychologic/' 1906. 
WiTASEK, St., "Grundlinien der Psychologic," 1908. 
Angell, J. R., "Introduction to Psychology," 1918. 
Calkins, M. W. (Miss), "First Book in Psychology," 4. edit. 

of 1914. 
DuNLAP, K., "A System of Psychology," 1912. 
DuNLAp, K., "Outlines of Psychobiology," 1917. 
Hunter, W. S., "General Psychology," 1919. 
MuENSTERBERG, H., "Psychology, General and Applied," 

1914. 
PiLLSBURY, W. B., "Fundamentals of Psychology," 1916. 
Russell, B., "The Analysis of Mind," 1921. 
Tansley, a. G., "The New Psychology and Its Relation to 

Life," 1920. 
Titchener, E. B., "A Textbook on Psychology," 1910. 
Ward, Jas., "Psychological Principles," 1920. 
Warren, H. C, "Human Psychology," 1920, 
Watson, J. B., "Psychology from the Standpoint of a Be- 

haviorist," 1919. 

4. Psycho-Physics 
Fechner, G., "Elemente der Psycho-Physik," 3. edit., 1860. 
Fechner, G., "Revision der Haupt-Probleme der Psycho- 
Physik," 1882. 
Mueller, G. E., "Grundlegung der Psycho-Physik," 1878. 

5. Abnormal Psychology 

Freud, S., "General Introduction to Psycho-Analysis" 
(transl. by G. St. Hall), 1920. 

GoDDARD, H. H., "Psychology of the Normal and Abnormal," 
1919. 

SiDis, B., "Foundations of Normal and Abnormal Psy- 
chology," 1914. 



294 A CRITIQUE OF ECONOMICS 

6. Instincts and Emotions 

Storring, G., "Psychologic des Menschlichen Gefiihlsle- 

bens/' 1916. 
Lipps, Th., "Vom Fiihlen, Wollen, und Denken," 1907 (Psy- 

chologische Untersuchungen, 2 vols., 1912). 
Barrett, E, B., "Motive-Force and Motivation-Tracks," 

1911. 
Bernard, L. L., "The Misuse of Instinct in Social Sciences," 

in Psychological Review, 1921. 
Crile, G. W., "Origin and Nature of the Emotions," 1915. 
Drever, Jas., "Instinct in Man," 1917. 
Faris, E., "Are Instincts Data or Hypotheses?" in American 

Journal of Sociology, 1921. 
Hocking, W. E., "The Dilemma in the Conception of In- 
stincts," in Journal of Abnormal and Social Psychology, 

1921. 
Hunter, W. S., "Modification of Instincts from Standpoint 

of Social Psychology," in Psychological Review, 1920. 
Kantor, J., "A Naturalistic Description of the Emotions," 

in Psychological Review, 1921. 
McDouGALL, Wm., "Introduction to Social Psychology," 7. 

edit, of 1912. 
Morgan, C. L., "Instinct and Experience," 1912. 
Shand, a. F., "Foundations of Character," 1914. 
Thorndike, E. L., "Original Nature of Man" (Volume One 

of Educational Psychology), 1913. 
Trotter, W., "Instincts of the Herd in Peace and War," 

1916. 

7. Affective View of Thought and Action 

Maier, H., "Psychologic eines Emotionalen Denkens," 1908. 
RiBOT, Th., "Psychology of Emotions," 1897. 
RiBOT, Th., "Essai d'Imagination Creatice," 1900. 



BIBLIOGRAPHY 295 

8. Senses and Pain-Pleasure 

HoLLiNGwoRTH^ H. L., and Poffenberger, a. T., "The 
Sense of Taste/' 1917. 

Marshall, H. R., "Pain, Pleasure and Esthetics," 1894. 

Behan, R. J., "Pain, Its Origin, Conduction, Perception, and 
Diagnostic Significance," 1916. 

Meyer, M., "Nervous Correlate of Pleasantness and Un- 
pleasantness," in Psychological Review, 1908. 

Moore, H. Th., "Pain and Pleasure," 1917. 

WoHLGEMUT, A., "Pleasure and Unpleasure," in British 
Journal of Psychology, 1919. 

Young, P. T., "Pleasantness and Unpleasantness in Rela- 
tion to Organic Response," in American Journ. of Psy- 
chology, vol. 32. 

Nadejde, B., "Biologische Theorie der Lust and Unlust/' 
1908. 

9. Valuation 

Anderson, B. M., "Social Value," 1911. 

Baldwin, J. M., "Social and Ethical Interpretations," 1897. 

BooDiN, J. E., "Value and Social Interpretation," in Am. 

Journal of Sociology, 1916. 
CooLEY, Ch. H., "The Social Process" (Parts Two and Six), 

1918. 
Parris, M., "Total Utility and Economic Judgment," 1909. 
PicARD, M., "Psychological Basis of Value," in Journal of 

Philosophy, Psycholgy, and Scientific Methods, 1920. 
Urban, W. M., "Valuation, Its Nature and Laws," 1909. 
Brogan, a, p., "Urban's Axiological System," in Journal of 

Philosophy, 1921. 
Watkins, J. B., "Welfare as an Economic Quantity," 1914. 
Brentano, L., "Entwicklung der Wertlehre — ," 1908 (Sit- 

zungsberichte der Kgl. Bayr. Akademie der Wissen- 

schaften, 3. Abhandlung, 1908). 



296 A CRITIQUE OF ECONOMICS 

Ehrenfels, Chr. v., "System der Wert-Theorie/' 2 vols., 

1897. 
Frischeisen-Koehler, M., "Grundlegung der Wert-Theorie," 

in Jahrbiicher der Philosophic, 1914. 
Gottl-Ottlilienfeld, F. von, "Der Wertgedanke, Ein Ver- 

hiilltes Dogma — ," 1897. 
Haering, Th., "Untersuchungen zur Psychologie der Wer- 

tung," in Archiv fuer die Gesammte Psychologie, 1913. 
Kraus, O., "Zur Theorie des Wertes, 1901. 
Kreibig, J. C, "Psychologische Grundlegung eines Systems 

der Wert-Theorie/' 1902. 
Krueger, F., "Begriff des Absolut Wertvollen als Grundbe- 

griff der Moral-Philosophic/' 1898. 
Meinong, a., "Psychologisch-Ethische Untersuchungen zur 

Wert-Theorie/' 1894. 
Meinong, a., "Ueber Annahmen/' 1910. 
Muensterberg, H., "Philosophic Der Werte/' 1908. 
Simmel, G.J "Philosophic des Geldes/' 1907. 



10. Valuation and Business 

SoMBART, W., "Quintessence of Capitalism" (transl. by Ep- 
stein, M.), 1915. 
Taussig, F. W., "Inventors and Money-Makers/' 1915. 
Veblen, Th., "Theory of Business Enterprise/' 1904. 



11. Psychology of Marginism 

Roche-Agussol, M., "La Psychologie Economique Chez les 

Anglo- Americains," 1918. 
Roche-Agussol, M., "Etude Bibliographique des Sources de 

la Psychologie Economique Chez les Anglo-Americains," 

1919. 



BIBLIOGRAPHY 297 

II. Epistemology and Metaphysics 
1. General 

Cassirer^ E., "Das Erkenntnisproblem in der Philosophic und 

Wissenschaft der Neueren Zeit/' 2 vols.^ 1906. 
Stein, L,., "Philosophische Stroemungen der Gegenwart," 

1908. 
Kant, I., "Kritik der Reinen Vernunft," 1781. 
Schopenhauer, A., "The World as Will and Idea" (transl. 

by Haldane, R. B., and Kemp, J., 1891), 1818. 
Becher, E., "Naturphilosophie," 1914. 

EisLER, R., "Einfiihrung in die Erkenntnistheorie," 1907. 
Mach, E., "Erkenntnis und Irrtum," 1905. 
Nelson, L., "Ueber das Sogenannte Erkenntnisproblem," 

1908. 
Reininger, R., "Philosophic des Erkennens," 1911. 
Rickert, M., "Grenzen der Naturwissensehaftlichen BegrifFs- 

bildung, 1902. , 

Windelband, W., "Einfiihrung in die Philosophic," 1914. 
Bergson, H., "Time and Free Will" (transl. by Pogson, F. 

L., 1913), 1889. 
BouTROUx, E., "Contingency of the Laws of Nature," (transl. 

by Rothwell, F., 1916) 1874. 
Enriques, F., "Problems of Science" (transl. by Mrs. K. 

Royce, 1914), 1906. 
Varisco, B., "Great Problems" (transl. by Lodge, R. C, 

1914), 1901. 
Campbell, N. R., "Physics, The Elements," 1920. 
Eddington, a. S., "Space, Time, and Gravitation," 1920. 
Pearson, K., "Grammar of Science," editions of 1900 and 

1911. 
Russell, B., "Our Knowledge of the External World," 1914. 
Russell, B., "Problems of Philosophy" (Home University 

Library edit.). 



298 A CRITIQUE OF ECONOMICS 

Schiller, F. C. S., "Humanism," 1912. 

Whitehead, A. N., "Inquiry Concerning the Principles of 

Natural Knowledge," 1919. 
"Essays in Critical Realism," 1920 (by Drake, D., Lovejoy, 

A. O., Pratt, J. B., Rogers, A. K., Santayana, G., Sellars, 

R. W., and Strong, C. A.). 

2. On Nature of Social Science 

Gottl-Ottlilienfeld, F. von, "Die Herrschaft des Wortes," 
1901. 

Heymans, G., "Gesetze und Elemente des Wissenschaftlichen 
Denkens," edit, of 1905. 

Janssen, O., "Wesen der Gesetzesbildung," 1910. 

KisTiAKOWSKi, Th., "Gesellschaft und Einzelwesen," 1899. 

Muensterberg, H., "Philosophic der Werte," 1908 (Ameri- 
can version as "Eternal Values," 1909). 

Rickert, H., "Kultur- und Natur-Wissenschaft," 3. edit, of 
1915. 

Stammler, R., "Die Lehre von dem Richtigen Recht," 1902. 

WiNDELBAND, W., "Gcschichte und Naturwissenschaft," 1894. 



III. Logic 

1. General 

Bain, A., "Logic, Deductive and Inductive," edit, of 1874. 

Bode, B. H., "Outlines of Logic," 1910. 

Bosanquet, B., "Logic, A Morphology of Knowledge," 2 vols., 

1888. 
Gibson, W. R. B., "The Problem of Logic," 1908. 
Hegel, G. W. F., "Logic" (transl. by Wallace, W., 1912, 

from "Encyclopedia" of 1817). 
HiBBEN, J. G., "Logic, Deductive and Inductive," 1896. 
HussERL, E., "Logische Untersuchungen," 1900. 
Joseph, H. W. B., "Introduction to Logic," 1916. 



BIBLIOGRAPHY 299 

Keynes, J. M., "A Treatise on Probability," 1921, 

Lewis, C. I., "A Survey of Symbolic Logic," 1918. 

Lodge, R. C, "Modern Logic," 1917. 

Mercier, Ch., "A New Logic," 1912. 

Mill, J. S., "A System of Logic, Ratiocinative and Induc- 
tive, 1843. 

Schiller, F. C. S., "Formal Logic," 1912. 

SiDGWicK, A., "The Use of Words in Reasoning," 1901. 

SiDGWicK, A., "Elementary Logic," 1914. 

SiGWART, Ch., "Logik," 2. edit, of 1889-93. 

Venn, J., "Principles of Empirical and Inductive Logic," 
1889. 

Windelband, W., "Logic" (in Encyclopedia of Philosophi- 
cal Sciences), 1913. 

2. Psychology of Reasoning 

Betz, W., "Psychologic des Denkens," 1918. 
Dewey, J., "How We Think," 1910. 
Jastrow, J., "Psychology of Conviction," 1918. 
PiLLSBURY, W. B., "Psychology of Reasoning," 1910. 

IV. Methodology 

Note: Much of the material on this subject will be found 
also in works on Epistemology and Logic, as given under II 
and III. 

1. Method in General 

Clifford, W. K., "On the Aims and Instruments of Scien- 
tific Thought," 1872. 

Jevons, W. S., "Principles of Science," 3. edit, of 1879. 

PoiNCARE, H., "Science and Hypothesis" (W. Scott Pub. 
Co.), 1905. 

Westaway, F. W., "Scientific Method," 1912. 



300 A CRITIQUE OF ECONOMICS 

2. Methods of Social Science and Economics 

Amonn, a., "Objekt und GrundbegrifFe der Theoretischen 

Nationalokonomie," 1912. 
DuRCKHEiM, E., "Les Regies de la Methode Sociale/' 3. edit. 

of 1904. 
Keynes, J. N., "Scope and Method of Political Economy," 

1891. 
Menger, C, "Untersuchungen iiber die Methode der Sozial- 

wissenschaften und der Politischen Oekonomie — ," 1883. 
SiMiAND, F., "Methode Positive en Science Economique," 

1912. 
Small, A. W., "Meaning of Social Science," 1910. 
Spann, 0., "Logische Aufbau der Nationalokonomie — ," 

1908. 
Stolzmann, R., "Grundziige einer Philosophic der Volks- 

wirtschaft," 1920. 
ScHUMPETER, J., "Wescn und Hauptinhalt der Theoretischen 

Nationalokonomie," 1908. 
Tarde, G., "La Logique Sociale," 1895. 
WuNDT, W., "Logik," edit, of 1895, vol. Ill, chs. 3-4. 

3. Statistics as Method 

Bowley, a. L., "Elementary Manual of Statistics," 1910. 
Davies, G. R., "Introduction to Economic Statistics," 1921. 
Fisher, A., "The Mathematical Theory of Probabilities" 

(transl. by Miss Ch. Dickson), edit, of 1922. 
Forcher, H., "Die Statistische Methode als Selbststandige 

Wissenschaft," 1913. 
Keynes, J. M., "A Treatise on Probability," 1921. 
Keyser, C. J., "Mathematical Philosophy," 1922. 
King, W. I., "Elements of Statistical Method," 1911. 
Lexis, W., "Abhandlungen zur Theorie der Bevolkerungs- 

und Moral-Statistik," 1903. 



BIBLIOGRAPHY 301 

Meitzen, a., "Geschichte, Theorie, und Technik der Statis- 
tik" (transl. by Falkner, R. P.), 1891, published by- 
American Academy of Political and Social Science, 

Mitchell, W. C, "The Making and Using of Index Num- 
bers/' being Part I of Bulletin No. 284 of Bureau of 
Labor Statistics, Oct., 1921. 

RuEMELiN, G., "Reden und Aufsatze," vol, I, 1875. 

Secrist, H., "Introduction to Statistical Methods," 1917, 

Sterzinger, O., "Zur Logik und Naturphilosophie der 
Wahrscheinlichkeitslehre," 1911. 

Venn, J., "Logic of Chance," 3. edit, of 1888. 

Weld, L. D., "Theory of Errors and Least Squares," 1916. 

Yule, G. V,, "Introduction to Theory of Statistics," 1911. 

ZizEK, F., "Statistical Averages" (transl. by Persons, W. 
M,), 1913. 

V, Ethics 

De Laguna, Th., "Introduction to Science of Ethics," 1917. 

Dewey, J,, "Human Nature and Conduct," 1922. 

Dewey, J., and Tufts, J. H., "Ethics," 1908. 

Everett, W, G,, "Moral Values," 1918, 

Green, Th. H., "Prolegomena to Ethics," 5. edit, of 1906. 

Hayes, E. C, "Sociology as Ethics," 1921. 

JoDL, F,, "Geschichte der Ethik in der Neueren Philosophic," 

edit, of 1906. 
Kant, L, "Kritik der Praktischen Vernunft," 1788. 
MuRDOCK, J. G,, "Economics as Basis of Living Ethics," 

1913. 
Paulsen, F., "A System of Ethics" (transl, by Thilly, F,), 

1899. 
SiDGWicK, H., "Methods of Ethics," 4. edit, of 1890, 
Simmel, G., "Einleitung in die Moralwissenschaft," 2 vols., 

1893. 
Smith, J, H., "Economic Moralism," 1917. 
Stephen, L., "The Science of Ethics," 1882, 



INDEX 



Analogy, as basis of inference, 
156-59 
in statistics, 228 
Association of ideas, and hedon- 
ism, 45-8 
and hypothecation, 310 
Averages in statistics, 218-21 

Capital, definitions of, 113-15 

as cost-item, 116-18 
Catallactics is untenable, 251 
Causation, defined, 181 

specific, 182 

as law in one aspect, 184 

plurality of, 185-86 

versus will, 188-89 

in social relations, 190-93 

in statistics^ 223-24 

and imputation of values, 244- 
45 
Classical economics, chief doc- 
trines, 4-6 

and marginism, 7-8 
Competition and monopoly as 

premises in economics, 81-3 
Comte, his idea of statics, 263-65 
Conditions, as modifiers of law of 

nature, 170-71 
Consumption in economics, 128-30 
Correlation, versus law, 179-80 

and event-complexes, 178 

and causation, 190-93 

and chance, 196-97 

and statistics, 221-22 
Cost and price, 94 

Deduction, formal, 148-50, and 
156 
and induction, 159 
in scientific work, 160-61 



Definitions, basic ones in eco- 
nomics, 136-39 (and Table 
Three) 

Demand as determining price, 85- 
92 
and supply defined, 83-5 

"Determine," meaning of word, 
78 

Diminishing returns, 132-34 

Diminishing utility or value not 
measurable, 75 

Distribution, nature of problem, 
101-06 
utilitarian versus marginal 
view, 106-09 

Dividend in distributive analysis, 
102 

Dynamic economics, 261-71. See 
also statics 

Economics, founders' view of sci- 
ence, 2-4 

logical questions today, 14; 31- 
7; 143-46 

scope of, 249-60 

static-dynamic question, 260-71 

applied as science, 259-60 

methods of, 272-78 

its untenable doctrines, 279-82 

new problems for investigation, 
283-86 

controverted points today, 10-12 
Enumeration, as inductive prin- 
ciple, 152-56 

and statistics, 225-27 
Ethics, and economics, 253-59 

source of its norms, 256-59 
Event-complexes defined, 178 
Expenses and price, 95-6 
Experimentation, 202-03; 207-11 



303 



304. 



INDEX 



Feelings and sensation, 46-7 ; 51-4 

Hedonism, theory, 45-50 

not the only possible ethics, 72-3 
Herbart's psychology, 18-19 
Hume, on inference and causa- 
tion, 151; 156-7 

Impatience and capital, 117-19 
Imputation of values, 344-45 
Induction, Hume's view, 151; 156 

physiological aspects, 152-56 

and probability, 161-63 
Instincts, modem view, 68-9 
Interest, points in determination 
of rate, 113-22 

Law of nature, defined, 78, 165, 

177 
quantitative and qualitative 

make-up, 166-70 
conditions of, 170-71 
subjective aspects, 172-76 
versus correlation, 178-80; 224- 

25 
Lexian series and induction, 229- 

30 

Margin, in price analysis, 97-100 
kinds of. Tables One and Two 
in distributive analysis, 122-28 
Marginism, points in common 
with classical economics, 7-8 
untenable doctrines, 281-82 
Mathematical method in econom- 
ics, 275-77 
Methodology, classification of 
sciences, 199 
experimentation, 202-03; 207 
statistics, 211-31 
reflection as method, 231-35 
Methodology of economics, essen- 
tial points, 26-8 
recent German controversy, 28- 

30 
methods, 272-78 
Mill, James, and his theory of 

valuation, 43-50 
Mill, J. S., and his economic 
methodology, 5-7 
and his idea of statics, 263-65 



Physiocratic view of social sci- 
ence, 2-3 
Pleasure, in sensationalistic psy- 
chology, 46-50 
modern view, 53-7 
Premises in economics, psycho- 
logical, 43-50 
non-psychological, 80-83 
Price, measurement of, 78 
defined, 79 

determination by orthodox eco- 
nomics, 85-100 
determination in a new way, 
285 
Private property and contract in 

economics, 80-1 
Probability in statistics, 226-30 
Production, orthodox view criti- 
cised, ch. 5 
Productivity, as distributive con- 
cept, 110-13; 120-22 
as law of return, 131-35 
Psychology, recent developments 
in, 17-21 
and economics, 251 
Purchasing power and price, 89-92 

Reconstructions in economics, ch. 
10 

Science, defined, 236-39 

nomothetic versus ideographic, 

240-41 
natural versus social, 243 
principles for their delimita- 
tion, 245-7 
Sensations not measurable abso- 
lutely, 57-8 
Sensationalism, and orthodox eco- 
nomics, 22-3 
as theory of valuation, 43-50 
refuted by modern psychology, 
50-73 
Shares and sharers in distributive 

analysis, 102-05 
Smith, Adam, on social science, 

2-3 
Sociology and economics, 252-53 
Standards in scientific measure- 
ment, 203-06 
Static economics, early views, 
261-65 



INDEX 



305 



static economics, early views, not 

tenable, 269-71 
Statistics, field of, 212-15 

methods of measurement, 216- 

21 
and averages, 219-21 
and induction, 222-30 
and economics, 273-75 
Substitution as principle of in- 
ference, 157-58 
Supply, defined, 83-5 

as price determinant, 92-6 
Syllogism, 148-50 

"Tendencies," meaning of, 244 
Trial and error method, 200-01 

Unit, in distributive analysis, 106 
of correlation in science, 167- 
70 



Unit, of time and space, in 
science, 180, 187-88 
of correlation and statistics, 
212-13; 216-17 

Valuation, according to classi- 
cists, 43-50 
modern view of psychology of, 

50-73 
cognitive aspects, 60-66 
volitional aspects, 67-73 
Value in economics, 136-39 
Variation as experimental meth- 
od, 207-08 

Wages and profits in marginism, 
109-11 

Wants, not measurable by psy- 
chology, 74-5 
and price, 85-92 



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